Spotless Spurns Downer Bid

Shock, horror, the board of Spotless Group (SPO) has recommended investors knock back the $1.2 billion bid from Downer EDI (DOW) labelling it as “opportunistic, hostile, highly conditional’ and unlikely to proceed.

“The Spotless board is unwavering in its belief in the fundamental strengths of the business,” chairman Garry Hounsell said in a statement to the ASX on Monday ahead of a formal target’s statement to be issued on Thursday.

Gee that statement didn’t take anyone by surprise.

Spotless said in its statement that New York hedge fund Coltrane Asset Management, which holds 10.37% of Spotless, did not support the deal and that was another reason to reject the proposal.

Spotless plans to release its target’s statement tomorrow and provide full-year earnings guidance for 2017 and 2018. It has not yet provided an independent expert’s valuation of the bid which should be included in tomorrow’s statement.

One of the conditions of Downer’s takeover offer is that Spotless does not lower the full year guidance it provided at its half year results in February when it told investors to expect net profits after tax of between $80-$90 million.

It is highly unlikely that Spotless would lower its profit outlook – to do so would be self-defeating and play into Downer’s hands.

Spotless shares closed on Friday at $1.11, the equal highest close since the bid was announced, but eased to just over $1.10 in trading on Monday. Spotless shares had sagged to 72.5¢ before Downer made its offer in March.

Downer shares dipped 0.1% to $5.62 – 30 cents off the $5.62 price for its mammoth $.1 billion fund raising. It has offered $1.15 cash for Spotless and the absence of any price above that level means the market reckons it is s shot duck.

Justifying its opposition, Mr Hounsell said the company had some strong businesses -“These include a blue-chip customer base and a strong portfolio of long term government, health, defence and PPP contracts.

“We have assessed the Downer offer in the context of our announced strategy reset which is expected to be material driver of growth and is already delivering results,” Mr Hounsell said in Monday’s statement.

The announcement follows an unsuccessful attempt by Spotless to have the bid knocked off at the Takeovers Panel over complaints about "misleading" statements.

"Your directors have been and continue to focus on exploring all options to maximise value to shareholders," Mr Hounsell said.

"If we remain an independent listed entity, the directors are confident that the fundamental strengths of Spotless’ core business, together with management’s execution strategy reset will deliver greater value to Spotless’ shareholders than the Downer offer in the medium term."

Spotless’ biggest problem is its patchy record as a listed company with variable profits.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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