Spotless Group shareholders continued to ignore the $1.15 offer from Downer EDI, leading to suggestions the we could be in for an impasse that lasts into 2018.
In fact Spotless shares rose slightly yesterday, topping the Downer offer price of $1.15 after the bidder declared its takeover bid for Spotless unconditional – which is an attempt to scare the majority of Spotless shareholders into accepting the offer.
Shares in Spotless ended at $1.15, up 0.8%, suggesting some punters see the chance of a higher bid emerging from Downer down the track.
Downer yesterday waived the defeating conditions to its offer and introduced accelerated payment terms in a move to boost its stake in Spotless, which stood at 36.44% on Friday at 7pm.
The Downer bid is final and values Spotless at $1.3 billion. Downer yesterday maintained a June 29 close for its $1.15 a share offer, in the hope of forcing more Spotless shareholders to accept the offer.
If the offer does close (and it will be hard to extend it into July if there is no significant lift in acceptances, then Downer will not be able to rebid for Spotless until late December or early in 2018.
That could see Downer with 40% to 50% and unable to consolidate it (it needs 90% or more to do that), meaning pressure on cash flow, margins and the bottom line with hundreds of millions of dollars in low yielding cash on its balance sheet from its $1 billion plus fund raising at the start of the offer. To that end, the engineering company urged Spotless shareholders to accept its offer without delay, saying it provided certain and compelling value.
It also said that even though Spotless believes its strategy to improve performance is showing early signs of success, the company’s forecast net profit before one-off items for 2018 would still be materially lower than its 2016 net profit.
“If the offer is unsuccessful and no superior proposal emerges, the Spotless share price is likely to trade at a substantial discount to the offer,” Downer said in a statement to the ASX.
Downer last week said it would waive the defeating conditions and introduce accelerated payment terms if it achieved a 50% stake in Spotless by June 16 but reserved its right to waive the defeating conditions at any time.
Downer’s board met on Sunday night to consider its position, with options including extending the bid deadline beyond June 29, sticking to the deadline and declaring it unconditional even without the previous 50% acceptance level.
It has already completed a $1.1 billion capital raising to fund the bid but risks emerging with a minority position and diluted earnings per share unless it can secure full ownership of Spotless
Spotless directors though are still opposing the bid and have issued 2018 earnings guidance and reaffirmed 2017 earnings guidance in a bid to reassure investors disillusioned by three previous downgrades.
Last week Spotless sold a group of short-term service contracts in New Zealand and extended the maturity on $300 million of debt.
