Downer EDI (DOW) shares are likely to go into a trading halt today if reports of a looming bid for Spotless (SPO) are correct.
There were reports last night that Downer EDI would start on a major capital raising Tuesday to fund a $1.2 billion takeover of Spotless at a reported $1.15 a share (well under the Spotless IPO price back in 2014 of $1.60).
That is a substantial premium over the 72.5 cents Spotless shares were selling at yesterday The $1.2 billion price is 50% above the company’s market capital of $799 million at last night’s close.
Analysts said the rumoured bid came as investment bank, UBS had grabbed up to 15% of Spotless’s issued shares.
Downer has an existing stake of around 5%. By late last night Downer EDI had gathered a 19.9% stake was was expected to release the bid documentation first thing this morning, as well as asking for a trading halt to allow the capital raising to go ahead.
Downer had $600 million in cash on its balance sheet at the end of last December, while its shares closed at $7.42 on Monday, around 7-year highs.
Spotless shares have sold off since the company reported a weak interim result in late February. Spotless also revealed $423 million of write-downs with the interim result.
The company has been a notorious underperformer in the past decade and there will be quite a few big investors wondering if Downer EDI might be biting off more than it can chew.
