G4S boosted by decision to shelve ISS bid
G4S (GFS) has decided to shelve plans for its proposed £5.2 billion acquisition of ISS as it faced backlash from its shareholders over the sale and complexity of the deal.
G4S had tabled plans to acquire the Danish-based international facilities services business via a £2 billion rights issue. But G4S shareholders voted with their feet and the company's stock has lost more than a fifth of its value since the deal was announced on 17 October.
The firm was the only gainer in early trading on the FTSE 100 on Tuesday, up over 2.5%.
Nick Buckles, chief executive of G4S, had spoken to more than 200 shareholders over the past fortnight to get them to agree to the deal ,which was conditional on securing 75% shareholder support at a shareholder meeting on Wednesday. He was met with hostility from the company's main shareholders.
Last week, Edoardo Mercadante, founder of hedge fund Parvus, which is G4S's fifth-largest shareholder, said that the deal was "too risky" for him to back. Schroders and Artemis, which hold 1.35% and 1% of the company's shares respectively, also mirrored Mercadante's views.
Buckles said that he was “obviously disappointed” that the company had not been able to complete the transaction.
"We felt strongly that the combination of G4S and ISS would create a market-leading integrated security and facilities services company which would be well placed to meet the growing needs of customers and deliver significant investment returns at the same time," he commented.
While there is no break fee associated with this transaction, G4S will incur £50 million of exceptional costs relating to hedging, coupled with legal and auditing fees.
Analsyt view
"We view this as good news for G4S and believe it to be better placed by executing an organic growth/bolt on acquisition strategy," stated Mike Allen, analyst at Panmure Gordon. Allen has a 'hold' recommendation on the stock.
Caroline de La Soujeole at Seymour Pierce said she believed the company has a strong underlying business with good growth prospects and the failure to conclude the deal does not alter this.
“However, it is now inevitable that there will be question marks over the future of CEO Nick Buckles. Mr Buckles has an excellent track record at G4S and it will be a shame if he has to depart following the failure to conclude the ISS deal.”
Given the uncertainty over the chief executive’s position the broker has left its recommendation at ‘hold’ and placed the target price under review.
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