The Downer EDI Limited (ASX: DOW) share price went into a trading halt as it's rattling the can for $400 million in loose change.
The engineering group is tapping investors on the shoulder for extra cash as it downgraded its guidance, announced a big write-down and looked to acquire all of Spotless Group Holdings Limited.
No one can accuse management of not keeping busy. The group now expects FY20 underlying net profit after tax but before amortisation (NPATA) of $210 million to $220 million.
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Profit downgrade and impairment charge
This is below its previous NPATA guidance of $300 million, according to the Australian Financial Review. The new guidance also represents around a 40% fall from FY19's figure of $340 million.
The group also expects to take a $386 million hit to earnings due to goodwill impairment, restructuring and portfolio review costs, payroll remediation, legal settlements and historical contract claims adjustments.
Acquisition of Spotless
But Downer is putting a positive spin on the situation. It wants to take full control of Spotless to fulfil its strategy of offering "urban services" which will provide consistent earnings and cash flow.
Spotless provides cleaning and maintenance services to government, utilities and healthcare customers.
Downer capital raising details
To achieve this goal, it's looking to sell new shares to raise cash via a 1-for-5.58 fully underwritten accelerated non-renounceable pro-rata entitlement offer. The offer price of $3.75 a new share is a 12% discount to Downer's last closing price of $4.26 yesterday.
Downer joins a long list of S&P/ASX 200 Index (Index:^AXJO) companies that have raised capital during the COVID-19 market shake-up.
This includes the Flight Centre Travel Group Ltd (ASX: FLT) share price, the National Australia Bank Ltd. (ASX: NAB) share price and Cochlear Limited (ASX: COH) share price – just to name a few.
Offer for Spotless Group
To win over Spotless minority shareholders, Downer will pay $1 per share of the unlisted company and issue one share option in Downer for every 17.92741 Spotless shares.
The acquirer also entered into a call option agreement with one of Spotless' minority shareholders, Coltrane Master Fund. This gives Downer the right to purchase 2.99% of Spotless shares, which will increase Downer's ownership above the 90% if exercised.
A bidder can move to compulsory acquire a company once it holds more than 90% of the target.
Downer believes it can extract $10 million to $15 million in synergies a year from the merger through restructuring, integrating operations and consolidating the Group's debt platform.
One hand taketh, the other giveth away
On the flipside, Downer is looking to divest what it deems as non-core assets as it tries to reinvent itself.
This includes its mining and laundry services businesses, on top of its Engineering and Construction (E&C) and Spotless' Infrastructure and Construction (I&C) divisions.
