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TAKEOFF! Here’s why the Spotless Group Holdings Ltd share price is up 46%

The Spotless Group Holdings Ltd (ASX: SPO) share price has shot 46% higher following a takeover offer from Downer EDI Limited (ASX: DOW).

Spotless Group Share Price

Source: Google Finance

Source: Google Finance

As can be seen in the chart above, it had been a tough few months for Spotless Holdings shareholders — until today! In fact, before this morning’s takeover offer, the $700 million cleaning and services business had fallen around 40% over the past year.

Downer EDI Takeover

In an announcement to the ASX this morning, the $3.1 billion Downer EDI announced a takeover offer for all shares in Spotless that it did not already own. The $1.15 per share all cash takeover offer values Spotless at $1.27 billion. Currently, Downer holds a 19.99% stake in Spotless.

The offer price of $1.15 represents a highly attractive premium to the Spotless share price, which yesterday traded at 72 cents. However, it is also opportunistic by Downer EDI because less than a month ago Spotless shares traded at 95 cents.

“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.” Downer CEO Grant Fenn said. “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.”

Spotless’ response to the takeover was less enthusiastic with its board telling shareholders to take no action, given the conditions. It said:

“Spotless notes that the Downer offer is highly conditional, with conditions including a minimum acceptance of 90%, no change in Spotless’ earnings guidance provided in February 2017, regulatory approvals, no termination of the underwriting agreement in relation to Downer’s announced $1,011 million equity raising and no material acquisitions, disposals or significant events being undertaken by Spotless.”

In my opinion, many of these conditions are common for takeovers of this size.

Spotless Chairman Garry Hounsell said the board will consider the proposal in light of the recent changes undertaken by his company to improve its competitive position. “We will assess any proposal in the context of our announced strategy reset, including the recently announced contract portfolio restructure, which is expected to be a material driver of growth and enhanced future performance.”

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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