Downer EDI, a major mining services company, wants to get into the cleaning and laundry business.
The company today launched a takeover which values cleaning and catering company Spotless Group at $1.272 billion.
The deal would create a company with combined revenues of $10.5 billion, 55,000 employees and a market capitalisation of more than $4 billion.
Downer already has 19.99% and wants the rest at $1.15, a 59% premium to yesterday’s closing price for Spotless.
A short time ago, Spotless shares were up 46% to $1.065.
The acquisition would create the largest diversified and integrated services manager in Australia and New Zealand.
“The acquisition of Spotless is a significant investment in Downer’s strategy to expand its capabilities and strengthen its position as a leading provider of services to customers in Australia and New Zealand,” says Downer CEO Grant Fenn.
“Downer’s all cash offer provides an excellent opportunity for Spotless shareholders to realise certain value for their shares, because the offer is at a substantial premium to recent trading prices.”
Downer will fund the deal with a $1.01 billion rights issue.
The board of directors of Spotless is evaluating the offer.
Chairman Garry Hounsell said: “The Spotless board continues to believe in the fundamental strengths of our business.”
Spotless has a blue chip customer base with government, health and defence contracts.
It also has the largest commercial laundry business in Australia and New Zealand.
Downer sees the buy as strategically compelling, coming with resilient earnings and long term customer relationships. And it believes its experienced Downer management team has the capabilities to value to the Spotless business.
UBS is acting as financial adviser and Ashurst is acting as legal adviser to Downer. Spotless has engaged Citi and Gilbert + Tobin.
Downer, hit hard by the end of the resources boom, has been repositioning itself from the mining sector to roads and rail, public transport, utilities, communications and defence.
The company last month posted an 8.5% rise in after tax profit to $78.2 million for the half year to December. Total revenue increased 1.7% to $3.6 billion.
Downer is now targeting net profit of around $175 million for the 2017 financial year, up from $163 million previously.
Spotless posted a $358 million half year loss, including writedowns of $391 million associated with restructuring.
Full year profit is forecast to be between $80 million and $90 million.