Analysis of Carl Icahn’s Bid to Acquire The Clorox Company

On July 16, 2011 the Wall Street Journal published an article concerning Carl Icahn’s bid to acquire the outstanding common shares of The Clorox Company (CLX) for $76.50 per share.  With approximately 140 million shares outstanding (including Mr. Icahn’s current holdings), the bid values the equity of company at $10.710 billion.

I did a forecast of CLX’s future operations, assuming a 3.0% growth in revenues for fiscal years 2011 through 2014; and operating margins of 19.0% in 2011 and 19.8% for fiscal years 2012 through 2014.  

Given that forecast and other assumptions (see link below), I calculated a financial buyer’s estimated pretax rate-of-return resulting from buying CLX in a hypothetical asset purchase in which the CLX shareholders receive pretax proceeds of $76.50 per share.  My buyout analysis indicates that pretax return to be approximately 15%.   The return would be lower if the buyer were required to issue warrants to subordinated debt providers. 

If the financial buyer’s pretax rate-of-return objective were 25%, the estimated purchase price of the shares would be approximately $67.00.  Click here to access the reports related to this buyout analysis at Google Docs. The “Overview” narrative report describes the valuation method and results.

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