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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