Time for Spotless to come clean on offer

While it is true that there is not an actual bid on the table, the reality is that the private equity group met Spotless chairman Peter Smedley (pictured) late yesterday afternoon and outlined their intentions of making an offer that values the company at $700 million.

The board has an obligation to advise investors of at least that much and Insider would suspect that ASX officials probably contacted the company yesterday to express similar sentiments when news of the intended bid was made public not long after the market closed.

The script for such statements is that the board "has received a highly conditional and incomplete offer which it is assessing. Shareholders are recommended to take no action."

Smedley and his board will, though, be well aware that in May they rejected another private equity approach at $2.50 a share, and the company's stock suffered as a result. The board reportedly wants a bid closer to $3 a share. That would seem optimistic.

The second reason for making an announcement to the ASX is the likely filing of a substantial shareholding notice by the private equity group to reflect the deals done yesterday to put its foot on 19.9 per cent of its target.

That notice from PEP will have to disclose what option arrangements or conditions enabled it to do deals with two of Spotless' largest shareholders Lazard Australia with 9.7 per cent and Simon Marais' Orbis Funds on 8.3 per cent.

Insider would love to have seen the look on Smedley's face when he was told that the man he replaced as Spotless chairman in late 2006, Brian Blythe, was one of the shareholders happy to sell to PEP. So was the family of another former director, Ian McMullin, who was waved off the board as Smedley arrived in a changing of the guard five years ago.

Insider thinks it is no accident that PEP has picked off two of the company's largest investors and two "old timers". That sends a psychological message to other shareholders, large and small.

There is every likelihood that former Healthscope chief Bruce Dixon, who was also a Spotless executive years ago, will appear in the PEP camp.

Until Smedley was moved in at Spotless, Blythe and Ron Evans (the late Essendon Football Club supremo and head of the Australian Football League) had free rein to mould Spotless to their desires.

Since their departures, Spotless has been remaking itself, gradually winning back institutional investor support with its story of being an integrated services supplier able to offer its army of 40,000 employees across catering, cleaning, maintenance and refurbishment skills in a packaged deal.

Separately, Spotless thinks, those services are commodities because the barriers to entry are low for competitors. So it has virtually a whole floor of employees devoted to tendering for complex contracts to supply the packages to government clients, such as for new hospitals, and the private sector, such as mine sites.

PEP is yet to outline its strategy, but the word is that it thinks Spotless' parts are worth more than the whole and is considering separating them.

Sadly, the fact that professional investor attention spans seem to be shorter than social networkers', the respective strategies will be well down the list in deciding Spotless' future. These days it seems to be all about getting cash now, rather than backing an idea or a plan, because those of us who read our superannuation statements want to see instantaneous jumps in notional wealth. If that persists, this country will never build another BHP Billiton or its like.

Watchdog bites

RICK Klink's Paritech Financial Services group has discovered that making sure your paperwork is filed ought to be a higher priority when the corporate watchdog gets a new set of teeth.

The Australian Securities and Investments Commission yesterday cancelled a financial services licence belonging to one arm of Paritech after what the regulator said were repeated failures to comply with demands for it to file overdue financial accounts.

Klink told Insider that the AFSL attaching to Paritech Pty Ltd is something of an anomaly, because all that company does is sell what is effectively charting software and most of the buyers are brokers rather than retail investors.

So that operation does not trade in the market, and there are apparently no client funds at risk. What is at risk is Paritech's corporate reputation, which is why Klink emailed customers yesterday telling them that "this does not impact the delivery of our software, administration or data services to wholesale and corporate customers".

ASIC records show that Paritech Financial Services last filed accounts in September 2010 and those were for the year to June 30, 2008.

Klink says the results for both 2009 and 2010 are with ASIC (Insider is not sure where 2011 is yet), but have been caught up in what seems to be the watchdog's version of Catch 22.

He says the company switched auditors, because its previous provider was overwhelmed, but got a bit cart before horse by not advising of the change before the accounts were filed.

That meant that ASIC received accounts signed by an auditor who, while accredited by the regulator, was not on record as having been formally installed by Paritech's board so the filings were rejected.

If that is right, Insider would have been banging his head on the table in frustration in the same circumstances. Klink says nothing on that, opting for the more practical route of solving his problem, which he thinks will take about a fortnight.

Still, it is no secret that ASIC's new boss Greg Medcraft has been going through Australian Financial Services Licence-holders like gastroenteritis through a small community. Not getting your reports in on time is begging for trouble in this environment.