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Why the Downer (ASX:DOW) share price is climbing higher today

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The Downer EDI Ltd (ASX: DOW) share price is lifting today on news the company has inked a deal to sell its Laundries business. At the time of writing, the Downer share price is up 0.76% at $5.32.

Downer is an integrated services company that operates primarily in Australia and New Zealand. The multi-functional company has three divisions: infrastructure, mining and rail. These industries move into market sectors such as minerals and metals, oil and gas, power, transport, telecommunications, water and property.

What’s driving the Downer share price higher today?

The Downer share price is moving higher today after entering an agreement with private equity firm, Adamantem Capital.

Downer said it was selling a 70% stake in its Laundries business for approximately $155 million. It advised that Adamantem would proceed with the purchase on a cash and debt free basis.

Once the transaction is completed, Downer will recognise its remaining 30% interest as an equity accounted investment. The company took ownership of the Laundries business in 2017 when it acquired an 88% holding in Spotless Group Holdings for $1.3 billion.

Downer previously attempted to offload the business to South Pacific Laundry just last month, and Alsco in October. However, competition regulator, the Australian Competition and Consumer Commission (ACCC), expressed concerns over both of the deals, leading to two failed takeovers.

The sale is subject to certain conditions being met, along with the ACCC and various customer approvals. It is expected that the deal will be finalised by the end of March 2021.

Management commentary

Downer chief executive Grant Fenn welcomed the sale, saying:

The sale of 70% of Laundries achieves the objective of removing one of the most capital-intensive businesses from the Downer balance sheet. Laundries continues to perform well as it recovers from the COVID-19 lockdowns in New Zealand and Victoria, and by retaining a 30% interest we will participate in this ongoing recovery.

Adamantem managing director Chris Adams added:

We intend to invest to grow the business for the benefit of the 1,900 loyal employees and numerous longstanding customers. We look forward to partnering closely with Downer and the management team and to take advantage of the exciting opportunities that lie ahead.

About the Downer share price

After falling more than 30% since the beginning of the year, the Downer share price has been regaining ground. From the start of November, the Downer share price is up 18% and the highest it has been since March. Although the company is still a long way off its 52-week high of $8.94 high reached in January.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. 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 Scott Phillips.

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