Spotless Investors Consider Board Ouster as PEP Talks Stall
January 11, 2012, 7:21 PM ESTBy Brett Foley and Angus Whitley
(Updates with closing share price in fifth paragraph.)
Jan. 11 (Bloomberg) -- Spotless Group Ltd. investors threatened to oust the Australian company’s board after it jeopardized a A$711.5 million ($734 million) takeover offer from Pacific Equity Partners Ltd. by declining to make internal financial documents available.
Orbis Group, the fourth-largest Spotless investor with an 8.3 percent stake, said it may call a shareholders’ meeting to oust Chairman Peter Smedley and his fellow directors. Investors Mutual Ltd., which owns 4.5 percent of the stock according to Bloomberg data, said it’s considering backing such a proposal.
Smedley said Jan. 9 that Pacific Equity must raise its bid for the Melbourne-based facilities and services company to at least A$743.4 million to get access to internal financial documents. Pacific Equity responded yesterday, saying it won’t increase the offer without studying the documents. The bid is 12 percent above Spotless’s latest closing price.
“Either the board allows due diligence or they are removed,” Simon Mawhinney, a fund manager at Orbis, said in a telephone interview yesterday from Sydney. “We appear to have no other option at this stage. We are incredibly disappointed with the board because to be preventing due diligence at this point is obstructive.”
Spotless rose 1.7 percent to A$2.39 today, giving the company a market value of A$634.4 million. That’s below the A$2.68-a-share bid from Pacific Equity. The stock hasn’t traded above A$2.80, the minimum sought by the Spotless board, since May 3, 2010, Bloomberg data show.
Board’s Duty
A spokesman for Spotless in Melbourne declined to comment on the investors’ intentions yesterday. In a statement today, Spotless said Pacific Equity’s bid doesn’t take into account the company’s expected results in three to four years.
“In any control transaction, the duty of the board is to ensure that the medium- and long-term prospects of the company are reflected in the value realized for the benefit of all shareholders,” Smedley said in the statement.
Pacific Equity, a Sydney-based buyout firm that oversees about A$6 billion, said it is willing to engage with Spotless at the A$2.68-a-share price it offered on Dec. 1 and can complete so-called due diligence in four weeks.
The Pacific Equity bid values Spotless at 16.8 times its most recent full-year profit, data compiled by Bloomberg show. That’s above the median ratio of 10.8 among commercial services companies traded in Australia, according to the data.
Ready to Accept
Pacific Equity should be allowed to carry out due diligence on the basis of its current offer, said Simon Conn, a Sydney- based fund manager at Investors Mutual who is prepared to accept the bid.
“If it requires changing the board to effect that, then so be it,” Conn said by phone. “If we have to vote the board out and get a bunch of directors who are willing to open the books to due diligence, then maybe that’s what will have to happen.”
By committing to a specific price -- A$2.80 a share -- that would win directors’ endorsement, Spotless may hurt the chances of getting an even higher offer, said Ellen Stoddart, a Spotless shareholder.
“I wonder about it as a bargaining position,” said Stoddart, a Melbourne-based accountant who covers the company for the Australian Shareholders’ Association Ltd. “If they allow due diligence and the bid stands at A$2.80, they won’t have much of a leg to stand on to argue it higher.”
Second Rejection
Pacific Equity raised its offer for Spotless, from A$2.63 a share, on Dec. 1 after the company rejected its initial approach on Nov. 17. Spotless provided Pacific Equity with a management presentation last month that included some earnings forecasts.
Spotless said in the presentation that earnings before interest and taxes will probably be A$90 million to A$94 million in the fiscal year through June 30, 2012. It forecast profit on that basis would rise to as much as A$150 million in three to four years.
“There was no information provided that would justify a valuation above our revised proposal of A$2.68,” Pacific Equity said yesterday.
Buying Spotless would give Pacific Equity access to a business that offers corporate services in more than 30 countries. The buyout group, formed in 1998, has about A$6 billion of funds under management.
Private equity transactions involving Australian companies rose 18 percent to $19.5 billion in 2011 from a year earlier, reaching the highest level since 2007, according to data compiled by Bloomberg. U.S. buyout firm KKR & Co. approached Pacific Brands Ltd. over a possible acquisition of the Australian distributor of the Everlast, Clarks and Dunlop brands, Pacific Brands said yesterday.
Spotless was criticized by some investors, including Orbis, after turning down Pacific Equity’s November approach. That was the company’s second rejection of a bid in six months. Orbis, Lazard Asset Management LLC and Investors Mutual had agreed to sell their Spotless shares to Pacific Equity, the buyout firm said in November.
Spotless in May said it rebuffed a A$657 million takeover offer without naming the suitor. Blackstone Group LP made that bid, a person familiar with the matter said at the time.
--Editors: Philip Lagerkranser, Mohammed Hadi
To contact the reporters on this story: Brett Foley in Melbourne at bfoley8@bloomberg.net; Angus Whitley in Sydney at awhitley1@bloomberg.net
To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net
