Burt's Bees sells for sweet $925 million

Maker of natural care products to stay in Durham after sale to Clorox

Apparently, you can attract bees with money as well as honey.

Clorox, the maker of bleach and other household goods, paid $925 million for Burt's Bees, the Durham company that makes more than 150 natural beauty products such as lip balm, lotions and soaps.

Coming just a little over a month after the company was put on the market by its owner, AEA Investors, a New York buyout firm, the deal signals a new stage of growth for the company.

John Replogle, the president and chief executive of Burt's Bees, said Clorox will give the company access to a rapid international expansion.

As for Clorox, the acquisition allows it to buff up its green image and tap into consumer demand for environmentally friendly products.

In a conference call, Clorox executives said the company would expand distribution of Burt's Bees into such large retailers as Target; beyond that, executives from both companies were tight-lipped about long-term plans.

Replogle said the company will remain semi-independent of Clorox and keep its headquarters in Keystone Park in Durham, where it employs about 380 workers.

"This is our home, and we will continue to grow here," Replogle said.

Replogle said that Burt's Bees had retail sales of $250 million in 2006 and that its sales are growing about 30 percent a year.

In addition to its headquarters, Burt's Bees has a facility in Keystone where it packages the products and a distribution center near Raleigh-Durham International Airport.

Replogle said Burt's Bees will continue to hire employees as the company grows.

But Replogle stopped short of saying whether Clorox would start marketing Burt's Bees on a national scale with TV commercials.

For now, he said, the company will continue to rely on word of mouth and its annual mobile tour, where the company visits major cities across the country and educates people about its natural products. He also said Burt's Bees products will continue to be sold at its core markets, which include stores such as CVS, Walgreens, Kroger and Whole Foods.

Kathryn Caulfield, vice president of corporate communications for Clorox, declined to say whether the company will move beyond its core distribution into the large department stores, such as Macy's.

Analysts' and investors' reactions to the deal, which is expected to close by the end of the year if regulators approve, were mixed.

Many said it was a good deal for Clorox but questioned the debt that Clorox took on to finance the acquisition.

Shortly after the announcement, Fitch Ratings in New York lowered its rating on Clorox.

In recent years, Clorox has bought back stock and taken other actions that have increased its debt load and reduced its financial flexibility, said Grace Barnett, director at Fitch.

"You kind of have to look at how much room do you have left," she said. "It's just given where they are and given where they used to be and where their peers are, the metrics are falling on a lower level. It's still a very good company."

Still, the increased debt is not a red flag, Barnett added.

"They expressed today that it was their intention to get the debt down," she said.

It's still too early to say if Clorox is paying too much, said Rich Smith, a senior analyst at Motley Fool.

If the natural care market grows as fast as it's expected to, it could be a good deal for Clorox, Smith said. "But at first glance, it looks like they are paying through the nose," he added. "Investors won't really know if the price was fair until Clorox releases its first quarterly earnings following the purchase."

The fact that Clorox is buying Burt's Bees is a surprise to some who have followed the deal.

"People were tossing around names like L'Oreal and Revlon," said Christine Idzelis, a reporter with the Daily Deal, an online report on mergers and acquisitions.

Caulfield of Clorox said that buying Burt's Bees is part of the company's strategy to expand into the health and wellness market.

According to Package Facts, an industry researcher, the natural and organic personal care sales experienced explosive growth, from $2 billion to $6.1 billion between 2002 and 2006. It is projected to shoot up to $10.2 billion in sales by 2012.

Caulfield said Clorox chose Burt's Bees because it is an established leader in the natural care market.

The company has come a long way from its humble beginnings.

Co-founder Roxanne Quimby built Burt's Bees from a roadside stand in 1984 into a national brand.

In late 2003, Quimby agreed to sell 80 percent of the company for $177 million to AEA Investors in order to pursue her passion for land conservation.

Once this latest deal is complete, Quimby will have no financial stake in the company, nor will she have a formal role, said Replogle.

However, he said "Roxanne obviously has been an inspiration to this company. We will continue to consult her for her thoughts and ideas."

(Staff writer Sue Stock contributed to this report.)