G4S rejects £3bn hostile takeover bid from Canadian rival

This is a hostile takeover attempt. Prior to making this offer official, GardaWorld had approached G4S three times behind closed doors only to be “summarily dismissed or ignored.” Its first two proposals were for 145p and 153p a share. The company also toyed with making a bid last April, but ultimately decided against doing so. Since then, it has swapped one private equity majority owner for another – BC Partners has taken up the 51 per cent stake previously owned by Rhône Capital – and returned to the table.

G4S has rejected what it calls a “highly opportunistic” offer, repeating the same objections as when GardaWorld mooted a potential 190p bid two weeks ago. G4S believes the proposal “significantly undervalues the company and its prospects” and has advised that shareholders take no action. But it hasn’t ruled out accepting a higher offer. Chief executive Ashley Almanza told the Financial Times last month that the board would “consider any credible proposal.”

That view is shared by some major shareholders, including the company’s largest single investor, Schroders, which owns a 10.5 per cent stake. Sue Noffke, head of UK equities at Schroders, concurs that the current bid “significantly undervalues” the company, but says they are “prepared to engage and are open to a deal at a fair price.” Meanwhile, US-based asset manager Harris Associates – which own around 5 per cent of the shares – says it values the company “substantially higher than the 190p bid, especially given the operational improvements over the past few years.”

Those “improvements” have become a matter of debate in this takeover tussle. G4S has been trying to reshape itself after a series of crises, starting with the London Olympics in 2012 when it failed to recruit enough security staff. Other calamities include being fined £44m by the Serious Fraud Office (SFO) after overcharging the Ministry of Justice for the electronic tagging of prisoners and being stripped of its contract to manage Birmingham prison after inspectors found the jail to be in an “appalling state”. But by restructuring and shifting towards higher margin technology-based security solutions, G4S has been hoping to get investors back on side, arguing that it has reached a “critical inflexion point.” It points to its performance over the first eight months of 2020 in the face of Covid-19. While revenue was 1.9 per cent lower than a year earlier, the group says this has been more than offset by cost cutting and lower interest paid on its debt. Underlying earnings are now said to be ahead of last year.

The balance sheet has made progress following the sale of the majority of its conventional cash collections business to Brink’s for £522m. Net debt at the end of June was down a quarter from the start of the year, at £1.56bn, equivalent to 2.6 times cash profits (Ebitda). But G4S is still facing a pensions millstone with a £276m deficit. Requiring an annual payment of £53m, this will weigh on cash flow – the group generated £61m of free cash flow in 2019.

GardaWorld is banking on investor patience wearing thin, saying that G4S has a “long history of overpromising and under-delivering”. It calls the company a “deeply troubled business” and believes that the slew of scandals leaves shareholders “exposed to a legacy of further claims, provisions and contingent liabilities”. GardaWorld has painted itself as a saviour that could spare investors further pain. “This will not be a quick or an easy fix,” says Raymond Svider, chairman of GardaWorld’s majority owner BC Partners. “Shareholders should bear this in mind when considering our offer.”