There is a speculation that is doing the rounds in the market that Downer EDI (ASX: DOW) is all set to come up with about a $1.2 billion takeover offer for the services contractor, Spotless Group Holdings Ltd (ASX: SPO). DOW has been reported to have secured about 19.9 per cent stake in SPO via broker UBS. Under the proposed bid, DOW may offer Spotless shareholders about $1.15 per share of the company. Downer EDI is also expected to go ahead with a major capital raising in an effort towards the above probable move.

This revelation has come under light as UBS (on behalf of DOW) has been reported to be raiding the register of SPO seeking up to 15 per cent of the shares, while DOW already had 5 per cent stake in SPO.

The takeover, however, will be subject to necessary regulatory approvals, and other factors including the minimum acceptance level required for the bid and whether SPO will be able to meet its earnings guidance. Spotless has otherwise recorded a $33 million profit for the half year ending December 2016 (pre-exceptional items) against $48 million of prior corresponding period, on $1.45 billion of revenue. FY17 NPAT (pre-exceptional items) is expected to be between $80 and $90 million.

In the last six months, SPO stock price has fallen about 26.4% (as at March 17, 2017). It will be crucial to watch-out the moves both the companies might take going forward.

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