Downer Edi Limited (ASX: DOW) share price has dropped 2.17% to $4.51 today on news of a lost laundry bid. Shares in the integrated services provider rallied up to $4.62 in mid-afternoon trading before falling sharply.
Downer Edi provides a range of services in Australia and New Zealand in transport, utilities, facilities, engineering, construction, maintenance and mining.
What happened?
South Pacific Laundry has withdrawn its bid to acquire Spotless Laundries, which is part of Spotless Group Holdings and wholly owned by Downer.
Spotless is one of Australia's largest commercial laundry operations, alongside the South Pacific Laundry operation. But a merging of two major players caused concerns with regulators.
In a statement in August, Australian Competition and Consumer Commission (ACCC) commissioner Stephen Ridgeway said:
This transaction would combine the two largest commercial laundry suppliers in Sydney and Adelaide, and two of the biggest suppliers in Melbourne and Perth, increasing market concentration where there are already a limited number of comparable suppliers.
The failed offer from South Pacific Laundry follows a similar failed bid from Alsco Pty Ltd last month. Alsco also withdrew its bid for the laundry titan as a result of similar regulator concerns.
More on the Spotless Group
Spotless and Downer both offer multiple service streams to multiple clients. Service lines include security, cleaning, catering and asset management to industries including defense, education, transportation and healthcare amongst others.
Downer acquired about 88% of the Spotless Group in 2017 and bought the remaining shares this year.
Spotless Laundries operates 13 commercial laundries servicing 4,800 clients across Australia and New Zealand. The business itself has been around since 1946, starting as a single dry cleaning shop in Melbourne.
Why is Spotless trying to sell its laundry business?
Downer CEO Grant Fenn said that the Spotless Laundries business was not core to Downer's service offerings.
He said Downer was focusing on building to its strength, which was an "asset-light, services-focused" business model.
Spotless Group has invested $47 million in capital improvement projects since 2017. FY20 revenue for the laundries business sat at $265 million in recent reports.
About the Downer share price
The Downer share price has performed poorly in 2020, losing as much as 40%. The coronavirus pandemic hit the share price hard and it's struggled to recover. The Downer share price has regained less than half it's lost ground since March.
