Spotless Group: Is it Worth A$1.15 Per Share?
(7 pages of text)
Case (Pub Mat)
On March 21, 2017, Downer EDI Limited, a leading provider of engineering, construction, and infrastructure management services in the Australasia region, announced an unsolicited offer for Spotless Group Holdings at A$1.15 per share, to be funded largely by a fully underwritten renounceable two-for-five rights issue at A$5.95 per share. Although an offer for Spotless Group Holdings was not unexpected, the market was surprised at the considerable premium of 58 per cent above the previous day’s closing price of A$0.725. With the institutional portion of the rights offering due to close the following day, an equity analyst with a large institutional fund that was a major shareholder of Downer EDI Limited, had little time to complete a thorough valuation analysis of Spotless Group Holdings. If the analyst determined that Downer EDI Limited was overpaying for Spotless Group Holdings, she would recommend that the fund turn down the rights offering and sell its stake in Downer EDI Limited.
This case can be used in undergraduate- or graduate-level courses on corporate finance and valuations. The case focuses on the valuation of a publicly-listed facilities management company. After working through the case and assignment questions, students will be able to
- understand the link between company strategy and valuation;
- complete a valuation using the free cash flow model; and
- undertake a valuation using the comparables method.
Australia, Large, 2017
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