Different markets experience seasons of acquisitions and mergers. Mergers and
acquisitions can help a company to cement its position and create value in terms of increased
revenues, reduced costs, and synergies. In a period when the American market was experiencing
radical change with increased demand for personal care manufactured using natural raw
materials, several companies were acquired by multinationals that wanted to enter into this new
market. This paper has been prepared to analyze Clorox, which acquired Burt's Bee, which was
one of the companies producing personal care products made from natural products and one
which had great potential. The paper analyzes if the acquisition was good for Clorox and at what
cost. The paper has been divided into six parts; problem, evidence, analysis, solution, content
development and conclusion.
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The first problem that Clorox faced in this acquisition was its image. The company was
known for producing chemicals that considered toxic and heavy use of synthetic materials that
are harmful to the environment. Even though the acquisition of environmentally friendly
products was gaining momentum, there was a need for the company to make clean its image or
risk losing the Burt's Bees. Additionally, getting the ingredients that are used in the manufacture
of Burt's bees in case of shortage is another problem the company faced. Since the company
could provide another distribution network for Burt's Bees, there was a need to meet the demand;
this meant that it was not easy to scale up production due to technicalities associated with
acquiring raw materials.
Also, the company had to incur additional debt in the purchase of Burt's Bees. It is worth
noting that the news about the acquisition of Burt's Bees by other multinationals prompted the
executives of Clorox to act fast. By taking more debt, the company increased its liquidity risk.
Additionally, this meant that the company would face solvency risk if it is not able to settle its
obligations. Looking at the acquisition of other firms that offered natural products, Burt's Bees
was overpriced even though it presented risks and benefits in equal measures to the company.
Burts Bees was bought for US$995 million five times the sales it makes annually. Even
though the company presented synergies and growth opportunities for Clorox, there were risks
associated with this acquisition. There was a growth in demand for personal care products, which
meant that products meant of synthetic materials might lose their market share. By acquiring
Burt's Bees, Clorox bought an entry strategy into this market, and this acquisition would enable it
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to sell some of the products that were made using natural materials. Also, while the market for
products made of natural ingredients, and most companies were looking for strategies to tap into
this market, Clorox had no experience in this market, and this meant that there were possibilities
of improving sales.
Burt's bees were a better deal for the company because the company analysis offered
faster growth, and the margins were impressive. The sales of the company were growing at a rate
of 30% and were expected to hit US$170 million in the year 2007. The margin exceeded 30% in
the same year, which was very impressive. On the other hand, Clorox had accumulated a date of
US$2 billion from its share redemption program, and this acquisition increased its debt structure
to US$2.8 billion. The acquisition saw a drop in financial performance in the first quarter;
however, the company performed better than expected.
The executive of Clorox is very strategic. The company did market analysis before
deciding which of the companies was the best to buy. According to Dess (2013), strategic
management is important in ensuring that the organization is effective. Also, the executives are
visionary risk-takers. They see a company that is growing very fast and one that can help them
improve their public image. The leaders also saw ways of increasing revenues of the acquired
company when they saw that the acquired company was not utilizing its distribution networks at
full capacity. Also, being risk-takers, the company performance was not as bad as it was
expected. The management of Clorox was able to carry out an in-depth analysis of the market
trend and that of Burt's Bees before deciding the next step.
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The acquisition of Burt's Bees meant that the company could get synergies in
procurement and distribution costs. In mergers and acquisitions, synergies are very important,
and this is what the management at Clorox saw and wanted. Synergies meant that the company
would gain more than the price it was paying for the business (Hitt et al., 2009). The purchase
price was very high, but to a certain degree, this meant that the company would gain more.
Besides, any market has inherent risk, and the company was no exception (Fox and Sklar, 2009).
The board was also strategic in redeeming some of its shares because debt is a cheap source of
capital in levels that do not expose the firm to insolvency and liquidity risk (DeAngelo et al.,
2011). However, overborrowing is not good for the business, and there should be a limit as
increased debt will stretch the assets of the business, and it can be liquidated.
The company performed slightly better off than was expected in the year 2007. There is
an inherent risk with any investment to which any business must pay the price. Having looked at
how other acquisitions worked gives insight on how the management of Clorox can ensure that
they stay afloat and get returns from the investment. Clorox was among the fastest-growing
companies, and it is important to ensure that the opportunities this acquisition presents are
capitalized. Clorox has built up a network of effective distribution channels that can be used in
getting products from Burt's Bees into the target market; this will increase revenues at a low cost
since the networks are already there. Also, Clorox had no experience in products made from
naturally occurring raw materials, and the acquisition presents the perfect opportunity for the
business to learn the process. By selling natural products, the company will improve its image,
and there will be more revenues to pay down the capital.
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From the analysis, the acquisition was a good idea by the management, although the price
was way too high. The management at Clorox should have negotiated for a better acquisition
price as the investment also presented risks that exposed Clorox to market risk and took the
opportunity to make other acquisitions. To avoid liquidity risk, the company should have floated
new shares to raise capital that would enable it to meet debt obligations as they mature
(Henderson et al., 2006).
Clorox made the right choice at the time when there was a need for change. It is
important to have responsive management that has responded well to external market changes.
Before making organizational changes, it is important to do a proper market analysis to ensure
that one can make strategic steps and decisions. Proper decision making is important if the
company wants to take advantage of opportunities in the market. Changes may come at high cost
with risks and inconvenience but change is necessary for the going concern of any entity.
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DeAngelo, H., DeAngelo, L. and Whited, T.M., 2011. Capital structure dynamics and transitory
debt. Journal of Financial Economics, 99(2), pp.235-261.
Dess, G., 2013. Strategic management: Text and cases. McGraw-Hill Education.
Fox, J. and Sklar, A., 2009. The myth of the rational market: A history of risk, reward, and
delusion on Wall Street (p. xi). New York: Harper Business.
Henderson, B.J., Jegadeesh, N. and Weisbach, M.S., 2006. World markets for raising new
capital. Journal of Financial Economics, 82(1), pp.63-101.
Hitt, M.A., King, D., Krishnan, H., Makri, M., Schijven, M., Shimizu, K. and Zhu, H., 2009.
Mergers and acquisitions: Overcoming pitfalls, building synergy, and creating
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