CHICAGO/BANGALORE Billionaire investor Carl Icahn put Clorox Co in play on Friday with a bid that values the company at more than $10 billion and suggested rivals consider paying much more for the bleach maker.
Icahn's offer of $76.50 per share represents a 12 percent premium to the stock's Thursday closing price and a 15.5 percent premium to its price in February, before Icahn announced his stake in the company.
In a letter to Clorox Chief Executive Donald Knauss, Icahn said he was confident the company could get "numerous superior bids" from large consumer products companies.
Investors were not heavily swayed. Clorox shares rose 8.1 percent to $73.90, more than $2.50 below the offer price.
"You could argue that people wouldn't buy it, but I don't see why not," Icahn told Reuters.
Icahn, Clorox's largest shareholder with a 9.4 percent stake, is known for pushing up the stocks in which he invests. In his letter, he said synergies resulting from any deal with a third-party strategic buyer could make even a $100-per-share offer viable to the likes of Procter & Gamble Co, Unilever Plc, Colgate-Palmolive Co, Reckitt Benckiser Group Plc, Kimberly-Clark Corp, Henkel AG and privately-held SC Johnson.
"They've got these great brands and that's why it's such a jewel for one of these companies," Icahn told Reuters, ticking off products such as Clorox, Brita water filters and one of the products he has used personally, Kingsford charcoal.
Industry analysts were quick to shoot down such ideas, saying Clorox's product lineup, which also includes Burt's Bees lotions and Hidden Valley salad dressing, is not the best fit for companies that already make household and personal goods and have largely stayed away from food and Clorox's more commoditized categories such as cat litter and charcoal.
"While many if not all can (financially) fund such a deal, why would they?" asked Weeden & Co analyst Javier Escalante. "What would a company like P&G do owning tiny Hidden Valley sauces or a Colgate owning Kingsford charcoal?"
Icahn's offer of $76.50 per share values Clorox at $10.2 billion based on roughly 133.3 million shares outstanding as of March 31. Excluding the 12.5 million shares Icahn already owns, he would pay about $9.24 billion for the rest of Clorox's shares and would also assume $2.125 billion in long-term debt.
The offer undervalues Clorox at just 9.5 times trailing 12-month EBITDA, said Morningstar analyst Erin Lash. In 2010, Unilever offered about 14.8 times EBITDA for Alberto Culver.
Financial buyers are the more likely acquirers, she said. Strategic buyers are unlikely to be interested given the high level of private label penetration in several of Clorox's categories and its exposure to more mature markets, she added.
Icahn first announced a 9.08 stake in Clorox in February and described the stock as undervalued.
HEAVY OPTIONS ACTIVITY THIS WEEK
Asked if Icahn's proposal constituted a real bid, a Clorox spokesman said: "That's really a question for Mr. Icahn. We don't know what his plans are beyond what has been published.
"Our board is going to be reviewing the proposal."
If no other potential buyers step up to buy Clorox, "there's no question that we would do it," Icahn said.
Icahn has a "highly confident letter" from Jefferies & Co to provide financing, along with $3.8 billion in cash.
"While we stand ready and able to buy Clorox, we encourage you to hold an open and friendly 'go-shop' sale process where all the synergistic buyers are offered due diligence and invited to bid," Icahn said in the letter dated July 14.
The activist investor, who said he has already arranged for $7.8 billion in financing through Jefferies & Co, offered to pay a $100 million break-up fee if he is unable to close the transaction, provided Clorox agrees to the deal by July 29.
Clorox posted disappointing quarterly results in May and forecast weak earnings for the next fiscal year as it grapples with rising packaging and materials costs.
Options activity heated up in Clorox earlier this week.
A total of 16,000 calls traded on Clorox on Monday, 38 times the average daily call volume, while a total of 1,562 puts traded, according to options analytics firm Trade Alert.
Icahn told Reuters he has never bought Clorox options.
"The options market feels confident some deal is going to happen and that there is a possibility for a rival bid," said Mark Sebastian, chief operating officer of options education firm optionpit.com. "Call premiums are elevated on Friday."
The U.S. Securities and Exchange Commission, which looks into unusual share and options activity, declined to comment.
(Reporting by Vidya L Nathan and Nivedita Bhattacharjee in Bangalore, Jessica Wohl and Doris Frankel in Chicago; editing by Anthony Kurian, Gopakumar Warrier, John Wallace and Andre Grenon)