Pacific Equity to Buy Spotless After Twice Raising Bid

Pacific Equity Partners Ltd., an Australian buyout firm, agreed to buy cleaning and catering contractor Spotless Group Ltd. after raising its bid a second time to A$720 million ($753 million).

Stockholders will receive A$2.62 a share in cash plus a special dividend of 4 Australian cents, and get to keep a 5 cent interim dividend, Spotless said today in a statement. Pacific Equity’s A$2.71-a-share offer is three cents more than its most recent bid and gained unanimous support from the Spotless board.

The agreement ends a five-month battle for the Melbourne-based contractor, which faced a shareholder revolt after refusing to negotiate on a bid unless the offer was raised to at least A$2.80. Spotless entered talks with Pacific Equity and opened up the company’s books in February after investors including Allan Gray Ltd. considered ousting the board.

“We think the board has done the right thing and followed the wishes of its shareholders,” Simon Mawhinney, a fund manager and Spotless shareholder at Allan Gray in Sydney, said today by telephone. “We always felt it was a reasonable price and the board has extracted an extra 3 cents a share.”

Shares Rise

Spotless rose 4.1 percent to A$2.56 at the close of Sydney trading, the biggest daily gain since Dec. 1. The takeover is subject to approval by investors and regulators.

Buying Spotless, which expanded from one dry-cleaning store in 1946, gives the private-equity firm access to a business that offers corporate services including facilities management, food and cleaning services, in more than 30 countries. Pacific Equity, formed in 1998, owns other Australian assets including the Hoyts cinema group and share-registry company Link Market Services, according to its website.

The bid provides “certainty of cash at a compelling price,” Rob Koczkar, a partner at Pacific Equity, said in a separate statement.

Shareholders including Allan Gray, formerly Orbis Group, Investors Mutual Ltd. and Lazard Asset Management LLC agreed in November to support Pacific Equity’s original bid of A$2.63 a share. The buyout firm raised that bid to A$2.68 a share on Dec. 1 after Spotless rejected its initial approach on Nov. 17.

Pacific Equity is paying 5.5 times earnings before interest, taxes, depreciation and amortization, or Ebitda, for Spotless. That compares with a median of 8.2 times Ebitda for eight comparable transactions, according to data compiled by Bloomberg.

‘Significant Disruption’

Since Pacific Equity’s initial offer, Spotless had experienced “significant disruption, uncertainty and material costs,” the company said today. The board didn’t receive a proposal from any other party since November, it said.

The uncertainty went back to May 2011, when the company rejected an approach of A$2.50 a share from another buyout firm, Blackstone Group LP, Spotless Chairman Peter Smedley said today on a conference call.

“It has been very time-consuming and distracting for management, customers and staff,” Smedley told reporters on the call. “The due diligence process was like having 400 of your in-laws in the living room with you when you’re trying to put the baby to bed.”

Spotless in February reported a drop in first-half profit as the Braiform coat-hanger division recorded a loss.

Pacific Equity further revised its bid April 24 when it offered to share the proceeds from a future sale of the Braiform unit with Spotless shareholders, according to two people with knowledge of the matter. That option, and a separate suggestion to pay in part with a subordinated note, were dropped in talks at the weekend, the people said.

Pacific Equity was advised by Citigroup Inc. and Spotless was counseled by Goldman Sachs Group Inc.

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