- Investors have been unimpressed by the rival suitors thus far
- The Takeover Panel is intervening to break the stalemate
The end is finally in sight for the months-long battle to take over security services group G4S (GFS). With neither GardaWorld nor Allied Universal commandeering enough shareholder support to get their respective deals over the line, the takeover regulator has decided to intervene and break the deadlock via a head-to-head auction.
Both suitors will now submit bids over the course of five days, starting from 22 February. New bids will be permitted on a daily basis, and if one of the parties drops out, the auction will come to an end.
Settling UK takeover battles through such auctions is rare. According to Takeover Code rules, bidders have 60 days from when the competing offer document is posted to shareholders to secure enough votes for their deal. In this case, the 60th day from when Allied’s offer document was published is 6 March.
But if by day 46, neither offer has been declared ‘final’ – meaning that bidders can still increase or change their proposals – the Takeover Panel normally requires that matters be settled via an auction. The Takeover Panel is the independent body that oversees mergers and acquisitions activity involving UK-listed companies.
An auction was used to settle the wrangling over broadcaster Sky back in 2018, when US cable giant Comcast (US:CMSCA) emerged victorious over 21st Century Fox with a bumper £31bn bid.
A drawn-out saga
The battle for G4S kicked off when Canada-based GardaWorld went public with its hostile takeover intentions in September, tabling a 190p per share all-cash bid. That proposal was swiftly rebuffed and followed the rejection of two earlier approaches that were made behind closed doors. GardaWorld was no more successful when it increased its offer to 235p two months later – valuing G4S at around £3.7bn – and reduced the threshold for approval from 90 per cent to 50 per cent plus one share.
Just one week after that, US rival Allied Universal arrived on the scene with a 245p per share bid, equating to £3.8bn for G4S’ entire issued share capital. But while Allied secured the backing of G4S’ board, that seal of approval did little to convince shareholders. Indeed, as of 9 February, just 0.85 per cent of G4S’ shareholders had chosen to accept Allied’s offer – a figure that includes the company’s directors, who have given irrevocable undertakings to support the deal.
Ever since Allied’s bid was announced, G4S’ shares have been trading above the 245p offer price as investors anticipated that GardaWorld would return with a higher counterproposal. That failed to happen as GardaWorld stubbornly stuck to its 235p per share bid, merely choosing to repeatedly extend its acceptance deadline. But this auction will now force it to come off the sidelines or walk away.
Panmure Gordon analyst Robert Plant believes that “Allied probably has an edge over Garda in the bidding as it is larger than Garda, has more geographic overlap with G4S (especially in the US) so can extract more cost synergies and was the first and only bid so far recommended by G4S’s Board.”
But with both Allied and GardaWorld being backed by deep-pocketed private equity – Allied by Warburg Pincus and Canadian pension fund Caisse de dépôt et placement du Québec, and GardaWorld by BC Partners – it really is anyone’s guess as to who will come out on top. With G4S’ shares currently sitting at 267p, that gives you an idea of the size of offer investors are expecting. As we await the outcome, hold.
Last IC View: Hold, 200p, 1 Oct 2020