Clorox rejects Icahn's $12.6-bn bid, adopts shareholder rights plan

Clorox Co, a maker of household products including its namesake bleach, today rejected billionaire activist investor Carl Icahn's unsolicited $12.6 billion bid and adopted a shareholder rights plan to guard against a takeover.

The board of Clorox determined that the unsolicited, conditional proposal from Icahn Enterprises substantially undervalues the company. "Our board has unanimously determined Icahn's unsolicited proposal is neither credible nor adequate," said lead director Gary Michael.

Icahn, who is the company's largest investor with a 9.4-per cent stake, had last week put Clorox into play in a bid to flush out prospective buyers.

He had offered $76.50 per share, a premium of 21 per cent to 14 July closing price, valuing the Oakland, California-based company at about $12.6 billion. (See: Billionaire activist investor Carl Icahn to buy Clorox for about $12.6 billion)

Defending the rejection, Don Knauss, chairman and CEO of Clorox said, ''At Clorox, we have a proven track record of delivering superior financial returns to our stockholders. Importantly, over the last three years since the start of the global recession, Clorox's total stockholder return was 43 per cent versus 10 per cent for the S&P 500 and 34 per cent for our comprehensive consumer packaged goods peer group."

The company added that it has a long history of consistently generating strong cash flow of 10 per cent or more of net sales, which has been effectively deployed to increase the value of the company and reward its stockholders.

Since the beginning of fiscal year 2006, Clorox has returned more than $2.6 billion in cash to stockholders in the form of dividends and share repurchases.

The company has increased total annual dividends paid to Clorox stockholders every year for the past 34 years, and the company has doubled the dividend from $1.20 to $2.40 per diluted share in the past five years, said the company in a statement.

Stockholder rights plan
The Clorox board of directors unanimously adopted a stockholder rights plan and declared a dividend of one right on each outstanding share of the company's common stock.

Clorox said the rights plan would not prevent a takeover, but would encourage a bidder to negotiate with the board prior to attempting a takeover.

Clorox, which sells bleach and cleaning products, home care products, dressings and sauces, water-filtration products, bags and wraps and containers, and natural personal care products, has recently struggled amid rising commodity costs.

The company offset higher costs with price increases, and in May posted an 8.5 per cent fall in its fiscal-third-quarter profit.

Icahn suggested that Clorox should go shopping for other bidders that could generate savings from a merger and expressed his confidence that there would be ''numerous superior bids'' for the company from strategic buyers like Procter and Gamble, Unilever and Colgate-Palmolive, Reckitt Benckiser, Kimberly Clark and Henkel.

Icahn said that unlike Clorox, these potential strategic buyers already have a more robust international platform and could leverage this platform to market Clorox's brands more aggressively internationally.

Clorox, which dominates the bleach category with 65 per cent of the US market, is a relatively small firm compared to its giant competitors. Its other brands such as Pile-Sol and Kingsford are also widely known; according to the company 93 of its brands are the No 1 or No 2 in market share in their respective markets.

Despite it trying to become a more global company, Clorox main market is in the slower growing North American region with Walmart Stores accounting for about 26 per cent of Clorox's net annual sales of $5.5 billion.

Rejecting Icahn's idea of merging with bigger rivals, Clorox said that its leading brands are well-positioned in their categories and continue to gain market share. Knauss went on to say that, on an all-outlet retail basis, the company's US brands have gained significantly more market share than any other branded consumer products company, or private label, over the last three years."

But Clorox did not rule out supporting any bid for the company and said, ''The board regularly evaluates opportunities given the dynamic nature of the company's industry and remains open to considering any credible plan to create significant stockholder value.''