Macquarie: Sell Spotless ‘Into The Bid’

All over bar the shouting at Spotless (SPO) which is due to release its target statement later today, with hopefully a set of profit and revenue forecasts for this year and next.

That will be the Spotless board’s final attempt to try and stave off Downer EDI (DOW) and its $1.15 cash offer.

Yesterday though Macquarie Group research analysts dropped a bomb on the embattled Spotless board.

We recommend (Spotless) investors sell into the bid…”

"SPO’s main defence is now around base business performance and to this end it will provide FY17 and FY18 guidance as part of Target statement to be released on 27 April," the analysts said.

"We are at lower end of SPO’s $80-90m FY guidance (reported basis) and forecast 13% eps growth in FY18."

It comes after Spotless revealed a global facilities services company had spent three weeks inside the cleaning and catering company, however failed to come up with a binding bid.

So with the rival bidder gone, Macquarie says Spotless had one less form of defence.

It means all eyes are now on Spotless’ target statement, due on Thursday, and acceptances into Downer’s offer which is scheduled to close on May 15.

"From a DOW [Downer] perspective, the risk is now that the SPO offer becomes protracted and that it doesn’t gain full control given a lack of SPO board support," the analysts said.

“At the same time, we see it as unlikely that DOW raises its bid given an absence of another acquirer, 59% initial bid premium and underwhelming reaction to its SPO offer."

Spotless shares fell 2.7% to $1.07 a speculators faded from the stock. Downer EDI shares rose 0.9% to $5.68, still well short of the less than successful $1.1 billion fund raising at $5.92 a share.

It looks like Spotless will be Downer’s headache, sorry concern, sometime after Mid-May. Watch for US hedge fund, Coltrane, which holds around 10.7% of Spotless, to abandon the company rather than be locked in. Remember, Downer already holds a 19.9% stake.

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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