A major investors’ advisory group is the latest dissenting voice to join growing shareholder opposition to G4S’s planned £5.2bn takeover of Danish cleaning and catering company ISS.
By James Hurley
8:15PM BST 23 Oct 2011
US-based Institutional Shareholder Services, which advises 1,700 large investors, has voiced concerns that the deal would represent a departure from the security giant’s strategy of focusing on small tactical deals in emerging markets, as previously set out by G4S chief executive Nick Buckles. The governance body also highlighted the risks of integrating 1.1m staff across 100 countries and the debt burden the deal would put on G4S’s balance sheet.
The governance body is advising investors to vote against the transaction on November 2, where G4S needs 75pc of voting shareholders to support the acquisition.
One of G4S’s most significant shareholders, Parvus, has already said it will vote against the deal, while a second top 20 shareholder and major City institution told The Sunday Telegraph that G4S had been “stupid” to approach shareholders about the deal so late in the process.
G4S believes the merits of bundling cleaning, security, catering and property management into a single contract will justify the deal for ISS, which was the subject of a failed flotation this year.
Institutional Shareholder Services said: “For a sector that is very competitive (both in security and cleaning) and where operating margins are low (5-6pc), the margin for error seems limited.”
G4S is planning to fund the takeover with a £2bn rights issue and £3.7bn in debt – the largest cash call in the City since Standard Chartered raised £3.4bn last year.
Funds are required to cover ISS’s £3.7bn debt and pay £1.5bn in cash and shares to its owners EQT, the private equity arm of Sweden’s Wallenberg family, and GS Capital Partners, part of Goldman Sachs
A spokesman for G4S said: “Institutional Shareholder Services has not met the company, has not heard the strategy and there are factual inaccuracies in their report – we’ve made a very clear statement that we continue to monitor large or transformational deals.”
Mr Buckles is due to meet Danish investors – who hold 12pc of the business – in Copenhagen today. There is no set schedule for the rest of the week but he is due to spend it attempting to appease shareholders’ concerns,
“We’ll see where the strongest pockets of demand are and [meet people] appropriately,” G4S said, adding that it had also received positive feedback from shareholders. G4S’s shares, which fell by 22pc to 219.9p when the takeover was announced on Monday, edged up to 241p by the end of the week. Has security giant G4S really lost the plot?