Downer EDI (ASX:DOW) - CEO, Grant Fenn
CEO, Grant Fenn
Source: Herald Sun
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  • Integrated service company Downer EDI (DOW) is aiming to raise $400 million to purchase the remaining shares in the Spotless Group
  • As part of the raise, Downer will begin a one-for-5.58 fully underwritten non-renounceable pro-rata entitlement offer for $3.75 per share
  • The money will also allow the company to focus on its core services businesses, such as transport and utilities, as it plans to leave the mining and laundries sectors
  • After the raise is complete, Downer will offer to purchase the remaining Spotless shares it doesn’t already own for $1 per share
  • The company also expects to report underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) of between $410 million and $420 million for FY20
  • It also expects an underlying net profit after tax adjusted (NPATA) of between $210 million and $220 million for the 2020 financial year
  • Company shares last traded for $4.26 per share on July 20

Integrated service company Downer EDI (DOW) is looking to raise $400 million via an entitlement offer to purchase the remaining shares in Spotless.

Entitlement offer

The company will commence a one-for-5.58 fully underwritten non-renounceable pro-rata entitlement offer for $3.75 per share, which is a 12 per cent discount to Downer’s closing price on July 20.

Funds will be used to fully purchase the remaining shares in the Spotless Group and to strengthen Downer’ss balance sheet. The money will allow the company to focus on its core services businesses, such as transport and utilities, as it plans to leave the mining and laundries sectors.

Downer entered a trading halt this morning and will not be back trading by July 22 or when the company completes the raise.

Spotless

Purchasing Spotless, Australia’s largest integrated service providers, is a key strategy for Downer.

After the raise is complete, Downer will offer to purchase the remaining Spotless shares it doesn’t already own for $1 per share. Additionally, Downer will also offer a Downer contingent share option — exercisable over one Downer share — for every 17.92741 Spotless shares accepted in the Spotless offer.

“Downer welcomes the opportunity to move to 100 per cent ownership of Spotless. While the Hospitality business has been materially impacted by the COVID-19 pandemic, the core facilities management businesses of health, education, government and defence continue to perform well,” CEO Grant Fenn said.

“The entitlement offer announced today will provide Downer with significant balance sheet flexibility and liquidity to complete an orderly exit of mining and laundries and continue to invest in our core businesses,” he added.

Sale of mining and laundries

Downer is currently looking at options for the potential sale of its mining assets and has received enquires from a number of parties. However, at this stage, nothing is set in stone.

Meanwhile, Downer’s laundries business has been performing well, with hospital volumes reportedly returning strongly. The sale process has been paused until investment market conditions improve.

Downer is currently reviewing its hospitality business to see which parts of the business will continue, be exited or sold.

2020 financial year

The company also expects to report underlying earnings before interest, taxes, depreciation, and amortisation (EBITDA) of between $410 million and $420 million for FY20.

It also expects an underlying net profit after tax adjusted (NPATA) of between $210 million and $220 million for the 2020 financial year.

However, Downer is expecting to pay around $386 million in charges outside its underlying result, due to a goodwill impairment, restructuring and portfolio review costs, payroll remediation, legal settlements and historical contract claims adjustments.

The company is expecting its net for profit after tax will land between $150 million and $160 million.

Company shares last traded for $4.26 per share on July 20.

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