Should Clorox Acquire WD-40?

Includes: CLX, WDFC
by: H.W. Daniel

When shifting out of a recession, investors are eager to allocate more capital to cyclical names. Clorox (NYSE:CLX) is a stock investors like to own during periods of slow economic growth – non-cyclical. People will continue to clean their homes despite what is going on in the economy. However, as the economy grows again, fewer investors are enticed to own a name like Clorox for reasons other than its dividend.

If Clorox bought WD-40 (NASDAQ:WDFC), I think the company can regain appeal, and this time for all economic periods going forward. In CLX’s most recent quarter, 19% of its revenues were derived from international operations. WD-40 for its most recent quarter had 44% of revenues stem from overseas. If Clorox wanted to increase exposure to overseas markets by roughly 10-15%, such an acquisition could help them do so.

18% of WDFC’s revenues come from homecare and cleaning products. The remaining 82% comes from its multi-purpose maintenance products. I think CLX, with its strong brand name and platform, can integrate WDFC’s homecare and cleaning products into its own lines and further diversify itself by combining into other segments WDFC’s multi-purpose maintenance products, which have seen significant growth domestically and internationally.

WD-40 is profitable and financially healthy. Interest rates are low and it would not be burdensome for Clorox to bite at WD-40.

Consider the following sources:

Disclosure: Long WDFC