With a 24% drop to $5.61, the Downer EDI Limited (ASX: DOW) share price has easily been the worst performer on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) today.
As we mentioned earlier this week, Downer is in the process of attempting to takeover struggling services company Spotless Group Holdings Ltd (ASX: SPO) for approximately $1.27 billion.
In order to fund the acquisition the company undertook a $1 billion equity raising at $5.95 per share.
Unfortunately though the market doesn't appear to see a lot of value in the deal. So much so institutional investors snapped up only 66% of the shares available to them, despite the offer being a 20% discount to Downer's last closing price.
UBS, the investment bank that has fully underwritten the equity raising, will now attempt to raise the remainder through retail investors.
What now?
I really can't say I'm overly surprised to see a distinct lack of interest in this equity raising.
Whilst Downer has a good management team that could turn around the struggling Spotless Group, the latter's significantly high levels of debt and inconsistent performance are not something that I find attractive at all.
In light of this I would suggest investors avoid both companies at this point in time and focus elsewhere in the market.
The sectors I am focusing on at the moment are the healthcare and information technology sectors. I think each of them has a number of companies with bright futures trading at great prices. I feel these sectors offer investors a far better risk/reward than anything Spotless or Downer can provide.