Shares in cleaning and catering company Spotless Group have jumped nearly 50 per cent after infrastructure and mining services firm Downer EDI lobbed a $1.26 billion takeover offer.
Downer EDI has taken a near 20 per cent stake in Spotless and offered $1.15 for each remaining share, a 59 per cent premium to value of Spotless shares at the close of trade on Monday.
Spotless shares were temporarily halted from trade after the surprise takeover announcement and immediately soared once that was lifted.
They were up 49 per cent at $1.08 at 1530 AEDT.
Downer said the acquisition would create the largest diversified and integrated services manager in Australia and New Zealand and provide "certain value" for Spotless shareholders, who have been buffeted by bad news in recent months.
Spotless shares hit an all-time low of 79.5 cents in February after the troubled company signalled a reduction in dividends following a $358 million half year loss that included heavy writedowns.
"The acquisition is a significant investment in Downer's strategy to expand its capabilities and strengthen its position as a leading provider of services to customers in Australia and New Zealand," Downer chief executive Grant Fenn said.
Downer has been repositioning its business to offset a continuing decline in core mining services. It has built capability in other segments, particularly in light rail design and construction, and utilities services to benefit from increased investment and outsourcing in public transport, communications and defence sectors.
If the takeover is successful, facilities services would account for 29 per cent of the combined group's revenues, Downer said, displacing mining and utilities services as the largest contributor to revenues.
Spotless said Downer's offer was "highly conditional" and advised shareholders to take no action while the board considers the approach.
Downer's conditions include a 90 per cent minimum acceptance for the offer and no change in the earnings guidance that Spotless provided in February.
Spotless chairman Garry Hounsell said his company's board continued to believe in the fundamental strengths of its business, and said it will assess any proposal in the context of the announced strategy reset.
"It looks like a fairly opportunistic offer that may be subject to revision," Australian Stock Report head of research Chris Conway said.
"This might be the first shot in a long negotiation."
Downer has separately launched a $1.01 billion rights share issue to partly fund the takeover. Its shares will remain in a trading halt until the completion of the institutional component of its capital raising.