Icahn's Low Bid for Clorox Is Self-Serving

Share price information brought current in this update.

BOSTON ( TheStreet) -- If Carl Icahn's $12.6 billion bid to acquire Clorox ( CLX) looks a tad self-serving, it is. For a billionaire investor who owns almost 10% of the consumer products company, that's the point.

In a letter Friday to Clorox Chairman and CEO Donald Knauss, Icahn proposed a buyout of the company at $76.50 per share in cash, an 11% premium to the stock's closing price on Thursday.

But in an interesting twist, Icahn encourages Knauss to pursue synergistic buyers, noting that uninvited buyout offers in the industry are frowned upon. Icahn asserts that Clorox could be worth $100 per share for any buyer other than himself.

Clorox Bleach

"Icahn has no motivation to take it private himself," says Jay Suskind, senior vice president at investment firm Duncan Williams. "He wants to get that stock up to $100 and get out."

Icahn initiated his investment in Clorox on Dec. 21, 2010, and the stock has rewarded him with an 8.4% return, excluding dividends, through Thursday. That compares with a 5% gain on the S&P 500. At $76.50, Icahn's investment would be up 21%. If another acquirer does come in at $100 per share for Clorox, Icahn's investment would be up 58%.

Icahn states that potential buyers could see up to 26% improvement in earnings per share based on a buyout price of $100 per share for Clorox. In essence, Icahn is begging someone to buy the company, stating that Clorox "is simply too accretive for these potential strategic buyers to ignore."

"He's done a gazillion of these type of things. My guess is that he just wants to put them in play," Suskind says. "There's no way they're going to sell at whatever price he bid for them. Obviously, he's trying to force the hands of someone to go in there and take them out."

Some names already circulating as potential acquirers of Clorox are Unilever ( UL), Colgate Palmolive ( CL), Kimberly-Clark ( KMB) and Procter & Gamble ( PG), which once owned Clorox before divesting the company in 1969. Of course, they're considered buyers now because Icahn himself calls them out in his letter.

Beyond putting the company in play, Icahn's letter to Clorox is interesting for two reasons: timing and tone.

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Compared with some of Icahn's other letters to companies and shareholders, Friday's note to Clorox is positively gentle. Icahn even offers to pay Clorox $100 million if the board accepts his offer and he fails to close "for any reason whatsoever."

"Normally when you hear Carl Icahn and shareholder letter, you figure it's going to be nasty," Suskind says. "If he really wants something, he crushes management and the firm itself. He usually kicks them pretty hard. This memo was mild and merely puts them in play."

For example, in a letter to Motorola ( MMI) shareholders in 2007, Icahn highlighted "serious problems in the mobile devices business," adding that "Motorola is a troubled company" and was "in need of a fresh perspective." He also called out the company's board as "passive and reactive."

More recently, Icahn wrote that "it is time for a change on the board of directors of Mentor Graphics ( MENT)," in an April 21 letter to shareholders. Among the critical points of that letter, Icahn argues that "Mentor's Board has persistently diluted its shareholders while its closest peers have not."

In terms of timing, Icahn couldn't have asked for a better day to make an impact with his Clorox bid. By picking a quiet summer Friday where the only other big news was Citigroup's ( C) quarterly results and some weak manufacturing data, Icahn did a great job forcing the hands of potential buyers.

"It puts it in the headlines because he timed it that way. It's a slow summer Friday," Suskind says. "Over the weekend, there will lots of talk about and, all of a sudden, it forces someone to make a move. This will get the suitors out there because they don't want to be late to the party."

But in the end, Icahn will be the big winner when it comes to Clorox. The stock was last up nearly 8% to $73.83 after touching a new 52-week high of $75.10 earlier in the session. His bid may be self-serving, but that's the way the market reacts when a billionaire investor throws his money around.

"This is philosophical, but if I own a couple hundred shares I could write a letter to other shareholders saying the stock is worth $100. And yet, it's not the same effect as Carl Icahn," Suskind says. "But this is what makes markets. No one is forcing anyone to buy or sell this stock."

"I think we're still in a free-market economy," Suskind adds with a laugh.

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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