Why Did Carl Icahn Bid For Clorox?

You have to hand it to Carl Icahn. He is one of the only investors who can determine their exit price from an investment if it does not fare as well as he had hoped.

Case in point: Clorox, which the 75 year-old offered the purchase for $76.50 in a $10.2 billion deal disclosed on Friday.

In a letter to Donald Knauss, chairman and CEO of the household products company, Icahn said he started accumulating his eventual 9.4 percent stake that made him the company’s largest shareholder on December 21 for $62.27. Since then, the stock moved to the upper $60s, a roughly 10 percent paper gain. Nice but not great.

So, this week Icahn decided to take matters into his own hands. He made an offer to buy the entire company for a price that is 21 percent above the closing price of Clorox’s stock on December 20, the day before he starting buying the shares, he points out in his letter.

Presto: The stock surged Friday morning by another 10 percent, to $75.74 in pre-market trading.

To prove he is serious about buying the company, Icahn stresses in his letter to Knauss he has secured $7.8 billion in financing from Jefferies & Co., which provided him a “highly confident letter.”

As further proof of his sincerity to complete the deal, Icahn promises the company that if Clorox’s Board of Directors accepts the offer and then he fails to close the deal, he will give the company $100 million.

So, Icahn is serious about acquiring Clorox, right? Well, not necessarily.

In the letter, the one-time corporate raider also said he is encouraging the company to hold an open and friendly "go-shop" sale process where all “synergistic buyers” are offered the chance to make their own bid.

In other words, once again Icahn has shrewdly put in play one of his major holdings when the stock did not naturally move up to his “target price.” You can tell he is hoping a Kimberly-Clark or Procter & Gamble or some other similar company will take him out of his misery, and his stock position.

In fact, history shows Icahn does not usually go the distance in hostile situations. Sharkrepellent.net says it has identified 15 unsolicited/hostile offers from Icahn. Several of them resulted in proxy fights, resulting in Icahn securing several board seats. However, none of these resulted in Icahn acquiring the company, although Icahn has acquired companies in friendly deals.

In any case, Icahn’s move on Clorox was somewhat predictable. The stock was one of only three new positions reported by Icahn at the end of the first quarter, and the only sizable holding among the three.

What’s more, one of the other two smaller new positions also became a takeover target — Southern Union. Williams Cos. is currently battling with Energy Transfer Equity to purchase Southern.

Which company could become Icahn’s next big target? In May, Clorox was one of my two picks.

Now I would still keep a close eye on Motorola Solutions, which also recently became a big new favorite of activist Jeff Ubbens at ValueAct Capital.

The other one is truck maker Oshkosh. Two weeks ago, Icahn reported he owned 9.51 percent of the shares, adding he intends “to seek to have conversations with management ... to discuss enhancing shareholder value.”

Icahn paid between $28 and $31 apiece for common stock. He also accumulated some shares using call options.

The stock closed Thursday at $31.07, up more than 7 percent since Icahn disclosed the position. The stock traded at close to $40 back in February.