When Carl Icahn lobbed in his bid for Clorox last week, a lot of people had their doubts about his seriousness. They pointed out that he doesn't really complete hostile deals all that much. They questioned his plans to raise $7.8 billion in debt, despite a highly confident letter from Jefferies. They suggested that his bid was just a weak attempt to drum up a third-party buyer.
These doubters seriously underestimate Carl's almost pathological love for cleaning products of all kinds, and he had some strong, loud words for them in his letter today raising his bid to $80 a share:
Concerning the remaining $7.8 billion, we do not believe there is any legitimate question that this amount can be raised. As we explained in our previous letter, consistent with the recent leveraged buyout of Del Monte Foods, we are extremely confident we can leverage Clorox at 7.0x Debt to our CY2011 EBITDA estimate at a blended interest cost of less than 6.5%. HOWEVER, TO FURTHER ASSUAGE ANY MISGUIDED CONCERNS, WE WILL ALSO ESCROW AN EXTRA $1 BILLION AGAINST ANY SHORTFALL IN OUR ABILITY TO RAISE THE $7.8 BILLION DEBT FINANCING.
In his initial bid, Icahn offered to bet $100 million - in the form of a reverse breakup fee - on Jefferies' ability to raise $7.8 billion of debt, which is just about twice the amount of high-yield bonds they've raised total so far this year. He's now effectively raising that bet to $1 billion.
There is a very wise saying: "If statesmen and generals were the first to go to the front line, there would be no wars." The question shareholders should ask is what risks are the board and management taking. IF THEIR OWN MONEY WERE AT STAKE, WOULD MANAGEMENT AND THE BOARD ARBITRARILY TURN DOWN OUR OFFER AND THE POSSIBILITY OF HIGHER ONES TO TAKE THE RISK OF THE VERY QUESTIONABLE "CENTENNIAL PLAN"?
Carl may be a general in the takeover wars, but he's a modern general who cares about his troops, and he's putting his own money out there on the front lines with the Jefferies bond salesman who has to sell bonds through 7x EBITDA behind a massive secured term loan. Though he's also not exactly denying that the real game here is the possibility of a higher offer from someone else.