Let's take a look at the potential strategic buyers who could potentially plop down in excess of $10-12 billion to own CLX.
CLX has engaged Goldman Sachs and JPMorgan as its financial advisors and Wachtell on the legal side. That's not a coincidence. Both GS and JPM have strong relationships with all the consumer products players leaving any potential bidders to go to other banking relationships (all of whom are probably scrambling to pick up a buy-side engagement). Wachtel is the toughest and meanest of the law firms when it comes to defense advisory (arnd have gone up against Icahn a number of times). As far as CLX is concerned, it is only considering the Icahn offer at this time and may simply turn it down without putting itself into play. What happens later is something else.
At a high level, CLX is still largely a US company (79% of sales) focused on being a leader in niche categories while the big consumer products companies today are all about being international (read EM).
Here's what CLX has to offer, based on 2010 sales of $5.2bn:
- Homecare (17%): PineSol, Formula 409, Tilex, Greenworks, Liquid Plumr
- Laundry (11%): Clorox
- Away From Home (3%): Clorox Pro / Institutional
- Glad (13%): trash bags
- Charcoal (11%): Kingsford
- Cat Litter (7%): Scoop Away and Fresh Step
- Dressings & Sauces (9%): Hidden Valley and KC Master Piece
- Brita (4%): water purifers
- Burt's Bees (4%): natural personal care products
- International (21%): Mostly LatAm household products brands
So it's a lot of bits and pieces, albeit potentially nice ones individually. The issue is that the big players are in many of these categories so a perfect complementary match is hard to achieve.
P&G - Market cap of $183bn. Have the means, but not necessarily the desire. They want to own Billion Dollar Consumer Products brands and have been systematically selling off smaller assets and food assets (e.g. Pringles and Folgers) for some time now to focus on brands with global potential. So likely no interest in the home care brands, charcoal, cat littler or salads and dressings. They may also have anti-trust issues on the laundry side and definitely with Brita (they own PUR). P&G also won't like that Private Label is a threat in many of the categories.
Unilever - Market Cap of ~$100bn. The other giant consumer products company has lost pace on P&G but remains a formidable player in food, household products and personal care. It has a large and somewhat eclectic portfolio of brands that might be able to absorb CLX's with as much disruption to as the others. It's unlikely, however, Unilever (or anyone else) would ever pay the 14x EBITDA it paid for Alberto Culver for CLX.
Colgate - Market cap of $43bn. Similar strategic priorities as P&G, in my opinion. Super focused on emerging markets. They have 4 clear businesses categories (by sales): Oral Care (43%), Personal Care (22%), Home Care (22%) and Pet Nutrition (13%). Where would CLX fit? It would just make a mess of things.
Kimberly Clark - Market cap of $26bn. KMB is a slow moving behemoth that is just as often grouped with Pulp & Paper companies as it is grouped with Consumer Products companies. Strategically, they are focused on a handful of big categories and the CLX hodge podge would be a tough fit. Management is conservative and has never been able to make any acquisitions of meaningful size outside of the healthcare category. They tout their growth prospects in emerging markets as a key growth driver. This would be a transformative transaction for them and, unless Bruce Wasserstein's ghost is whispering "Dare to be great" in the CEO's ears, don't think they would ever have the wherewithal to do the deal.
Reckitt Benckiser - Market Cap of ~$40bn. Reckitt may not be that well known in the US, but it is a strong global player in many markets with brands like Woolite, Air Wick, Durex and Lysol. It recently acquired SSL Industries (maker of Durex condoms) for $4 billion so they might be busy integrating what was their largest acquisition ever. That acquisition was to meet the CEO's aim "of expanding in health and personal care as growth slows in Reckitt’s larger household cleaners unit." Buying CLX would reverse that strategy. More importantly, the long time CEO also recently announced his retirement in April and I would be surprized if his successor (an internal candidate) would make such a bold acquisition even before his official accession to the throne in September 2011.
Henkel - Market Cap of ~$26bn. It's worth noting that Henkel owned 29% of CLX until 2004, when CLX essentially repurchased the Henkel stake in a cash-rich split off and a few small brands at the time Henkel made the acquisition of Dial (a CLX competitor). So does Henkel want back in? While the portfolio fit would be once again a little messy, it would help the company increases its scale in North America. This would also be a rather large ticket for Henkel as well.
SC Johnson - Privately Held, approx $9bn in sales (let's say a FV of $18-20bn). CLX sees SCJ as one of its key competitors and even benchmarks its overall category shares relative to SCJ in a recent investor presentation. There are a number of serious portfolio overlaps: namely Home Cleaning and Food Storage (Ziploc vs Gladware vs Saran). It would also be a big
There also exists the possibility of some players teaming up to buy CLX and breaking up the portfolio. Not sure if the sum of the parts are worth more than the whole, but this would be one way to address the issue of transaction size and portfolio fit.
In addition to the players above, partners for parts of the business could include some of the mid-sized players as well:
- Church & Dwight
- Sun Products
- Private Equity players
From CLX's point of view, however, this would only make sense if one buyer took them out and then immediately sold off pieces to the other interested party/ies.
1) CLX is not a small company and there are only a few companies out there that could purchase it for cash without stretching themselves.
2) CLX has an eclectic portfolio of leading brands in niche categories that is not a perfect fit for many of the large strategic players
3) CLX remains a mostly US company and hence may be of less interest to the US players who are focused on international growth
4) The CLX brands are nice-to-haves rather than must-haves
5) While cost synergies are real, revenue synergies are nice to hope for rather than expect them. Doing a deal strictly for the sake of cost synergies, however, is not a good long term product portfolio strategy.
So... Icahn's claim that there should be LOTS of interest is a stretch. CLX has some flexibility to pursue a just-say-no strategy (for now at least), do some sort of leveraged recap and repurchase a large block of shares (including Icahn's), or even make an acquisition of its own. It may be the case that Icahn actually wants to own CLX, although many believe that is not the case. An acquisition by Icahn would generate ZERO synergies, so what's the play there? The highly confident letter from Jefferies is meaningless as it's not committed financing (and they don't have the balance sheet capacity anyway). The $100m fee offered is cute, but is just a tactic that would easily pay for itself if CLX actually put itself into play.
Every year, bankers pitch CLX as an acquisition opportunity to each and all of the potential buyers above. The combination analysis has been done multiple times, the synergies calculated multiple times - so why never a deal? It is true that interest rates are low, but the strategic reasons to acquire or not acquire CLX have not really changed and having to outbid Icahn will only make the deal more expensive.
DISCLOSURES: I hold no position in any of the companies mentioned above.