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Never a dull moment with Carl Icahn.
The investor put in an unsolicited bid Friday for
Clorox(CLX - Get Report). At an offer price of $76.50 per share, the proposed deal would equate to just a 11% premium over Thursday's closing price. But Icahn has a different price target for Clorox in mind, one that is substantially higher.
As noted in his
letter to Clorox CEO Donald Knauss it is likely that his intention is not to buy out the company, but for a white knight to step in and come up with a higher bid, ultimately making Icahn's 9.4% stake worth a lot more then it was worth a few days ago. Icahn encourages Clorox to "hold an open and friendly 'go-shop' sale process where all the synergistic buyers are offered due diligence and invited to bid."
Icahn, in typical fashion, offers no guidance or suggestions on how to unlock the potential value with shares. He only offers that, since interest rates are so low, "it seems clear to us that there are potentially multiple substantially larger strategic bidders with robust balance sheets who are in a position to make a bid that reflects significant inherent synergies."
So who might these suitors be? In his letter, Icahn offers up
Procter & Gamble(PG - Get Report) ,
Colgate Palmolive(CL - Get Report) ,
Kimberly Clark(KMB - Get Report), and
Henkel AG as potential partners. He even goes so far as to note that at a takeout price of $100 per share, earnings per share for the following potential acquirers would improve by the respective amounts: Kimberly Clark by 26%, Colgate Palmolive by 25%, Reckitt Benckiser by 21%, Unilever by 9%, and Procter and Gamble by 5%.
But is Clorox really worth $100 per share? At that price, Clorox would be valued at roughly 25 times 2012 estimates of $4 EPS, or at 12.5 times trailing 12-month EBITDA (based on EV/adjusted EBITDA measure). For an EV/EBITDA comparison Kimberly Clark trades at 9.4 EBITDA, Colgate at 11.3 times, and P&G at 12 times.
Obviously, with an acquisition of a highly valued brand portfolio such as that of Clorox (Glad, Fresh-Step, Pine-Sol to name a few), there is certainly a premium baked in, but it would appear that a 12.5 multiple on EBITDA wouldn't be too far off the mark in what we've seen with other past acquisitions.
When Gillette was acquired by Procter & Gamble in 2005, it paid what seemed at the time to be a fairly significant multiple of 17 times EV to EBITDA. But the deal turned out to be a huge success for P&G, as the company realized significant synergies. Icahn even referenced this deal in his letter, noting that P&G "was able to achieve cost synergies that exceeded its target of $1.2 billion or 11.5% of Gillette's sales and revenue synergies that exceeded its target of $750 million (7.2% of Gillette's sales)."