In a high-priced and highly unexpected deal, the maker of Clorox bleach, Kingsford charcoal and Brita water filters has added the leading natural personal-care brand to its portfolio in a $950 million cash acquisition.
Clorox is paying 5.5 times Burt's expected $170 million in 2007 sales, a multiple similar to the one Procter & Gamble Co. paid for Gillette in 2005. Then again, Burt's Bees is growing faster -- at a compound annual clip of 25% the past three years -- and Clorox is betting it can grow much faster still if backed by the distribution muscle of a company with $4.6 billion in sales.
Burt's, which has grown its business largely through health, natural-food and other specialty stores, entered Target earlier this year, and it already had plans in place to begin a distribution test with Wal-Mart Stores by year-end, according to a person familiar with the matter.
Clorox and Burt's Bees executives declined to comment on Wal-Mart distribution prospects but said the distribution power of Clorox, which already gets 26% of its sales from Wal-Mart, was a key factor in justifying the deal.
Other bidders for the hottest property in natural personal care included Unilever and SC Johnson, according to another person familiar with the matter. Spokespeople for those companies couldn't be reached for comment.
Burt's gives Clorox its first major entry into personal care and furthers its involvement in two of what Chairman-CEO Don Knauss has identified as consumer megatrends: sustainability and "health and wellness."
Along with Green Works
Dovetailing with the Burt's acquisition is the planned rollout later this year of Green Works by Clorox, billed as an environmentally friendly cleaning line that aims to tap growth that has been captured lately by independent brands such as Method and Seventh Generation. The latter has seen growth of 40% to around $100 million in sales during the past year, according to CEO Jeffrey Hollender.
Clorox also plans to grow the business globally, helping address one of its shortcomings: Only 15% of Clorox sales come from outside the U.S., compared with nearly 60% for P&G.
But the pairing of a natural-products brand with a consumer base won largely through environmentally focused retailers as Whole Foods could be a tough branding fit with a company known best for making chlorine bleach, said people familiar with Burt's.
Then again, "it's likely not many of the consumers or category targets for Burt's Bees products are even going to know that Clorox has acquired the company," said Robert Passikoff, founder of the New York branding consultancy Brand Keys. That said, however, he doubts Clorox or Burt's Bees will do much to make them aware of the link either.
"We're going to continue to run the business with the same team and the same principles with the same integrity of the natural products and sustainability that we always have," said John Replogle, CEO of Burt's Bees. "So really there should not be any perceived change for the consumer. And if you get to know Clorox and their people, mission and values, they're tightly aligned with our own."
The company will remain based in North Carolina, not move staff to Clorox headquarters in Oakland, Calif.
"It's a very high multiple," said Sanford C. Bernstein analyst Ali Dibadj. And while Clorox has projected sales growth in only the mid- to high teens, its goal of using Burt's Bees to add two points of sales growth overall to the company over the next two years actually implies a faster growth rate than the current 25% and $270 million in sales by 2009.
The deal comes on the heels of Burt's Bees launching a nationwide cinema ad campaign -- a public-service announcement on the issue of colony collapse disorder for bees -- fronted by none other than company founder and veteran beekeeper Burt Shavitz. The ad, by Tag Creative, New York, will run, fittingly enough, before the debut of Jerry Seinfeld's "Bee Movie" nationwide, starting Thursday.
Burt's and Interpublic Group of Cos.' Martin Agency, Richmond, Va., quietly parted ways within the past two months after Martin landed the assignment in January. Mike Indursky, Burt's chief marketing and strategic officer, said the parting was a mutual decision, prompted by Martin's lack of beauty and personal-care experience.
But he said Burt's plans to maintain its existing agency relationships with Pool for creative and Pedone & Partners for media, both New York.
Omnicom Group's DDB Worldwide, San Francisco, and OMD, New York, handle creative and media for other Clorox brands.