Clorox to Buy First Brands for $1.52 Billion

Clorox Co. agreed Monday to buy First Brands Corp. for about $1.52 billion in stock, as the largest U.S. maker of laundry bleach seeks to boost sales by adding Glad bags and STP auto products to its stable of brands.

The acquisition would bolster Clorox’s overseas sales at a time when many consumer products companies have been hit hard by declining demand for their products outside the United States.

Danbury, Conn.-based First Brands, which also makes Scoop Away and Jonny Cat cat litters and Starterlogg and Hearthlogg fireplace products, derives about 23% of its sales from international operations, primarily in Canada, Australia, New Zealand and South Africa.

Oakland-based Clorox said it expected to generate annual cost savings of nearly $90 million, most of which would be achieved by the end of the first year after the deal is completed.

Monday’s deal would be by far the largest acquisition in Clorox’s 85-year history.

“This acquisition is a rare opportunity that strikes a great balance between strengthening our existing portfolio in litter and auto-care products while also providing an exciting new platform for the future in the attractive, growing bags and wraps category,” Clorox Chief Executive G. Craig Sullivan said in a statement.

Under terms of the deal, which has been approved by both boards, First Brands shareholders would receive $39 worth of Clorox shares for each First Brands share outstanding. Clorox would also take on about $440 million in debt.

The deal would help Clorox’s earnings in fiscal 1999, before a one-time charge of $110 million for the acquisition, Clorox said.

With annual sales of $1.2 billion, First Brands is the former home and auto division of Union Carbide Corp.

In New York Stock Exchange trading, First Brands shares jumped $12.38 to close at $36.

Clorox’s stock rose $4.25 to close at $104, also on the NYSE. Investors had pushed up Clorox shares in recent weeks in part because they felt Clorox was insulated from the turbulent world markets.

Clorox, which is twice the size of First Brands and makes such products as Formula 409 and Pine Sol cleaners and Combat pesticides, is betting that its clout with big retailers and stringent cost controls will turn around First Brands.

First Brands has struggled for two years with rising plastic costs, higher marketing expenses for new products and inventory cutbacks by retailer Wal-Mart Stores Inc., its largest customer.

“The acquisition adds great brands that are market leaders,” said analyst Paul Mackey of Buckingham Research Group in New York. “Clorox, with its marketing resources, can make even better use of these brands.”

Taking a page from marketing giants such as former parent Procter & Gamble Co., CEO Sullivan has expanded Clorox with about 30 smaller acquisitions in the last five years.

The acquisitions have boosted sales to $2.74 billion in fiscal 1998 from $1.63 billion in 1993, while Clorox trimmed costs, said Charlotte, N.C., money manager James M. Myers.