Shares in infrastructure and mining services company Downer EDI have fallen more than 20 per cent after institutional investors showed limited enthusiasm for a capital raising to help fund its $1.26 billion takeover of cleaning and catering firm Spotless Group.
Downer EDI hopes to raise $1.011 billion through an offer of two new shares for every five held by both institutional and retail investors.
The company on Friday said it had raised about $757 million through the offer of new shares to institutional investors.
But those institutional investors took up only 66 per cent of their entitlements.
Also, a bookbuild aimed at selling the entitlements that weren't taken up failed to clear the offer price of $5.95, which was a 19.8 per cent discount to Downer's closing price of $7.42 on the share market on March 20.
Downer now hopes to raise $254 million through an offer of new shares to retail investors, also at the offer price of $5.95 and the same two-for-five ratio.
The company's shares were hit hard when they came out of a trading halt on Friday, and were $1.47, or 21 per cent, lower at $5.53 at 1401 AEDT.
Chief executive Grant Fenn on Friday said arrangements are in place to fully fund the takeover offer and that Downer had a track record of executing acquisitions successfully.
"Downer has the team with the right experience and capabilities to manage Spotless," Mr Fenn said .
"We have generated significant value in Downer over the past few years and we intend do the same with Spotless."
Morningstar analyst Mark Taylor said in a research note earlier this week that Downer's bid for Spotless was in accord with its sensible diversification away from mining services.
But, he recommended non-participation in Downer's equity raising, saying that its shares were overvalued and that the offer price of $5.95 for the new stocks was substantially above fair value.
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