MELBOURNE, AUSTRALIA (Jan. 16, 1:05 p.m. ET) — Negotiations between Spotless Group Ltd. and Pacific Equity Partners Pty. Ltd. have reached a stalemate after discussions to buy the service company began in November.
Sydney-based Pacific Equity Partners Pty. Ltd. (PEP) is standing by its A$2.68 a share offer, even after Melbourne-based Spotless told the private equity firm it had to meet five criteria, including increasing the price, for a sale to proceed.
Spotless, whose plastic coat hanger division is the company's weakest link, received an indicative, non-binding and conditional offer from PEP in November to buy 100 percent of its shares for A$2.63 a share, valuing the company at about US$717 million.
The Spotless board rejected the proposal last year, saying the offer did not reflect the company's “fundamental value.”
Spotless detailed the five criteria to the Australian Stock Exchange Jan. 9, saying they must be met before Spotless will allow PEP to access its books. A key term requires PEP to increase its offer to at least A$2.80 a share, which values the company at US$764 million.
“In the current circumstances, this is the lowest price at which the Spotless board would be willing to unanimously recommend a scheme of arrangement,” the company statement said.
PEP must also confirm its investment committee's approval to support the required equity finance; supply confidential letters from PEP's debt financiers to support the required debt finance; agree to the scope and process for its due diligence; and execute a confidentiality agreement.
Spotless management said the A$2.80 a share valuation was based on estimates for the financial year ending June 30, 2012. It estimated earnings before net interest and tax (EBIT) could be US$92.9 million to US$97 million. Spotless excluded any recovery in hanger demand for its Braiform division in the estimate.
Braiform supplies polypropylene garment coat hangers, packaging and hanger re-use programs to 32 countries, including the United States.
While all other Spotless operating divisions delivered sales growth in the year to June 30, 2011, Braiform's sales fell 0.8 percent to US$219.3 million. The division's operating profit fell 32.6 percent to US$5 million. Hanger units manufactured dropped 5.8 percent to 2.45 billion.
Spotless told PEP Braiform could increase its EBIT contribution in the medium term if hanger volumes recovered.
But PEP, a private equity firm that focuses on buyouts and providing late-stage expansion capital in Australia and New Zealand, only reconfirmed its previous Nov. 30 proposal. PEP said Spotless has provided no information that would justify a higher valuation.
“The proposal represents a highly attractive proposition for Spotless shareholders. PEP remains willing to progress the revised proposal expeditiously [but] is unable progress [it] without access to due diligence,” PEP told the Australian stock Exchange.
Spotless Chairman Peter Smedley said it is the board's duty to ensure the company's medium and long-term prospects are reflected in the value. He said the clearly outlined terms required for due diligence provide “certainty” to PEP and its shareholders of the board's position.
Australian equities fund manager and a Spotless shareholder, Sydney-based Investors Mutual Ltd. (IML), was reported in Australian media saying it could call a special shareholder meeting to vote out the Spotless board.
IML Senior Portfolio Manager Simon Conn reportedly said IML was happy with the A$2.68 offer and would push for a change in the board if it had to. However, Conn would not comment further to Plastics News.
Spotless shareholder Sydney-based Orbis Australia, which comprises Orbis Investment Management Australia Pty. Ltd. and Orbis Investment Advisory Pty. Ltd., is also reported to be unhappy at the board's position on the takeover.
Orbis Senior Portfolio Manager Simon Mawhinney was reported as saying Spotless's refusal to give the PEP board the opportunity to conduct due diligence was an “unacceptable outcome.” He did not return PN's calls.
Last May, Spotless rejected an offer from another private equity firm to buy the company for A$2.50 a share. Apart from the Braiform division, Spotless's other services include cleaning, security and catering.