Whack, small shareholders in Downer EDI (DOW) have comprehensively rejected the company’s $1.3 billion bid for Spotless (SPO) group by refusing to fund the retail component of the $1.1 billion fund raising.
In fact Downer had been looking for just on $1.1 billion from shareholders to help fund the controversial deal and has obtained just over half of that from consenting shareholders, according to an announcement revealed just after trading closed on Tuesday afternoon.
The retail component of Downer’s equity raising has been the disaster that many though it would be, with just $5.2 million in applications received for a $254 million raising to help fund the Spotless cash bid made in March with at $1.15 a share.
The bid for Spotless Group has been, for the time being at least, a company changing event for Downer for the worst possible reason for a company – rejected by an overwhelming majority of shareholders.
Downer’s share price reflected that – falling 19 cents to $5.21 yesterday, 74 cents under the issue price.
The shares hit a year high of $7.62 hit in March, just before the bid was announced on the 21st of that month.
A large part of the entitlement issue to big shareholders was rejected, leaving underwriter, UBS with a $300 million shortfall, which it will now have to place with a group of reluctant sub-underwriters.
There was no incentive for retail shareholders to take up the two-for-five entitlement because the shares have been trading at such a steep discount to the offer price of $5.95, meaning those wanting to top up their holdings were better off buying on the market.
Overnight Tuesday UBS began an auction to try to offload $250 million of Downer shares which hadn’t been taken up by retail holders. But seeing many institutions had previously baulked at the fund raising to help pay for the takeover bid, the results of this offering will be a disaster as well.
Spotless told the ASX last week that that it was “advancing” talks on what it called a “potential superior proposal” and told its shareholders to take no action on the Downer bid, which was officially sent to Spotless shareholders on the same day.
But Downer is in the box seat because it has already grabbed a 19.9% stake in Spotless, making it difficult for any potential counter-bidders who would need to offer a more generous price. The takeover offer will stay open until May 15 unless extended.
Downer raised $757 million in an institutional offer which was fully underwritten by UBS. But institutional shareholders had put up just 66% of their entitlements, forcing UBS to top up the result. Now it could be forced to take a further $249 million from the issue to small holders. That will be laid off to sub underwriters or sold into the market over time.
