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Clorox (NYSE:CLX) is a multi-billion dollar company with a very strong moat. Chances are you have one or more of its products in your home. Its cleaning division offers its products under the Clorox, Clorox 2, Formula 409, Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Green Works, Armor All, and STP brands. Its lifestyle division offers its products under the Hidden Valley, K C Masterpiece, Brita, and Burt'’s Bees brand names. Its household division offers its products under the Glad, Fresh Step, Scoop Away, Ever Clean, Kingsford, and Match Light brand names.

With Clorox, branding is everything. The company has some of the strongest brands in the world. Due to the nature of its products, a recession would not have a significant impact in its earnings, though there would still be an impact. The reason is simply that consumers need its products. In a recession, will people stop cleaning their houses? Will people stop using garbage bags? Will people stop doing laundry?

Thus due to its necessity and power in the marketplace, the company has become a cash cow blue-chip company. Now you may be wondering, why should Clorox shareholders not settle for a sweet $80 per share offer? If we look at the company, there is very little growth in the U.S. Clorox products are almost in every household. Of course with a modest recovery, earnings will increase but not by much. The real reason shareholders should not cave in is because of the enormous cash flow that will be generated from its emerging markets business.

I visit India, and China, every once in awhile to visit family. I visited some shops in both countries and was amazed by the amount of middle class families using these products. In fact, when I visited a shop in India that was selling Clorox bleach, shoppers were complaining to management of these stores that the size of the bleach bottles was too small. This was not even close to what the demand for its Brita filter line were like. Due to lack of clean water in rural areas in India, many middle class and wealthy families are purchasing these filters as an easy solution to the problem. These emerging markets are going to generate a fair amount of cash flow to Clorox.

Sure it would be great to accept the $80 and get a nice short-term return, but maybe if you are willing to be a little more patient, you may end up seeing a much higher return. The question shareholders must ask themselves, is a company with a product in nearly every household in the U.S. and a growing emerging market base only worth $10 billion? A company like P&G (NYSE:PG) has a market cap of over $160 billion. Of course the company is bigger and deserves to have such a valuation, but I do not think it is unheard of to see Clorox at even a $14 billion valuation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Clorox Should Not Accept Carl Icahn's Offer