Bloomberg News

Icahn Makes ‘Back-Stop’ Offer for Clorox in Bid to Spur Sale

August 30, 2011

(Updates with Clorox response in fourth paragraph.)

Aug. 30 (Bloomberg) -- Billionaire investor Carl Icahn, campaigning to oust Clorox Co. directors and put the company up for sale, said he’d back up that process with his third takeover offer in two months for the maker of bleach and Glad trash bags.

If Icahn succeeds in replacing Clorox’s board and the company still doesn’t find a buyer, he said he will pay $78 a share, or $10.3 billion in cash and notes, to “back stop” the sale process, according to a statement today.

The move seeks to put pressure on Clorox, which last month rejected Icahn’s two earlier proposals, including one at a higher price of $80 a share, and said the investor was unlikely to be able to complete them. The Oakland, California-based company said it would continue to implement its strategy and return excess cash to shareholders.

“The Clorox board of directors remains open to any credible proposal, and believes that Mr. Icahn’s latest proposal is highly conditional, substantially undervalues the company and is not credible,” the company said in a statement.

A credible proposal would include a fully underwritten debt commitment and “clearly identified and adequate equity capital,” Clorox said.

Icahn, Clorox’s largest investor with a 9.5 percent stake, said in an interview that he lowered his bid for Clorox because he’s willing to buy the company at a guaranteed price without conducting due diligence. The “back-stop” offer carries more risk, Icahn said.

Shares Climb

Clorox rose $1.89, or 2.8 percent, to $70.52 at 4:15 p.m. in New York Stock Exchange composite trading after earlier gaining as much as 5.4 percent. The shares have climbed 11 percent this year.

Icahn has suggested companies including Procter & Gamble Co., Colgate-Palmolive Co. and Kimberly-Clark Corp. as strategic buyers for Clorox. Japan’s Kao Corp. was looking at the company, the New York Post reported this month, citing an unidentified person familiar with the situation.

“He doesn’t really want to buy the company,” said Jack Russo, an analyst at Edward Jones & Co. in St. Louis. “He wants to start an auction process.”

Icahn said in the interview that Clorox would reap “significant synergies” by merging with a competitor.

Kathryn Caulfield, a company spokeswoman, didn’t immediately return a phone message and e-mail seeking comment today. Clorox said Aug. 19 that it hadn’t yet scheduled its 2011 annual meeting, where Icahn is seeking to replace all 11 directors.

Icahn Slate

Besides himself, Icahn’s slate includes other officers at his firm, as well as A.G. Krongard, a former executive director of the Central Intelligence Agency and vice chairman of the Johns Hopkins Health System, and Glenn Zander, a former executive at Aloha Airgroup Inc. and Trans World Airlines.

Offering to buy a company as a spur to put it in play is a common Icahn maneuver. Mentor Graphics Corp., WCI Communities Inc., and Mylan Inc. are among companies that got offers from Icahn that were never consummated.

Icahn’s three offers involved different prices and different forms of payment. The first, on July 14, was for $76.50 a share in cash. The funds would come in the form of equity investments from Icahn and his affiliates and from $7.8 billion in debt financing arranged by Jefferies Group Inc.

Clorox rejected that offer four days later and instituted a shareholder rights plan to protect against a takeover.

Second Proposal

The second proposal, on July 20, was for $80 a share in cash, and Icahn offered to put $5.2 billion of the amount in escrow to prove he would follow through.

Today’s offer of $78 is in cash and registered senior unsecured notes, and isn’t conditioned on financing or due diligence, according to Icahn’s statement.

“The Clorox shareholders should have the right to decide for themselves whether to accept my bid or a better bid which I believe will be forthcoming from the sale process,” Icahn said in today’s statement.

Clorox senior unsecured notes due in October 2017 are rated BBB+ by Standard & Poor’s, or three levels above non-investment grade.

S&P placed Clorox’s BBB+ grade on CreditWatch with “negative” implications on July 15, citing potential debt financing of $7.8 billion as part of the Icahn purchase, according to a note on Aug. 1.

“A meaningfully debt-financed transaction would significantly weaken Clorox’s credit protection measures well below current levels,” S&P analysts Susan Ding and Mark Salierno wrote. The company’s credit grade could be lowered into the ‘B category,’ which is at least four levels below investment-grade, according to the note.

--With assistance from Leslie Patton in Chicago and Sapna Maheshwari, Cristina Alesci and Lauren Coleman-Lochner in New York. Editors: Romaine Bostick, Robin Ajello

To contact the reporters on this story: Duane D. Stanford in Atlanta at dstanford2@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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