G4S has bowed out of a controversial bid to acquire cleaning and catering firm ISS. The move comes after strong objections from investors who balked at the price and timing of the purchase.
In a statement, G4S said that the company and FS Invest II S.àr.l. (FS Invest) had agreed to terminate a share purchase agreement which G4S had been due to put to a shareholder meeting on 2 November 2011.
Leading institutional investors are behind the shareholder revolt. Harris Associates, the second largest shareholder with 5 per cent ownership, confirmed it was one of the rebels.
According to Reuters, G4S chief executive Nick Buckles was unable to save the ISS deal despite last minute frantic negotiations with shareholders.
Alf Duch-Pedersen, Chairman of G4S, said:
“We believe that developing our business towards an enhanced security and integrated facilities services model is the way forward in the longer term and we saw ISS as an excellent opportunity to achieve this aim. However, following the announcement of the Acquisition, shareholders have raised concerns particularly over its scale and perceived complexity against the backdrop of current macro-economic uncertainty.
“We consulted our leading shareholders ahead of announcing the transaction, and based on the feedback received, felt confident to launch the deal. We have now discussed the merits of this combination with a significantly larger number of our shareholders and whilst they continue to express their overwhelming support for the standalone G4S business and its management, the Board has listened carefully to concerns raised by shareholders regarding the Acquisition and has concluded that in the circumstances it is inappropriate to proceed.
“G4S is a successful and well managed business. It has delivered year on year earnings and dividend growth since the group was created in 2004 from the merger of Securicor and Group 4 Falck. G4S has consistently generated returns on invested capital well above its cost of capital, and delivered average shareholder returns of 13.3% per year since the start of 2005.
“The Board and management of G4S remain focused on continuing to generate sustainable shareholder value and driving business success both organically and through targeted acquisitions.”
Nick Buckles, Chief Executive of G4S, said:
“We are obviously disappointed that we have not been able to complete this 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.
“However, we respect the importance of shareholders’ views and, on the basis of feedback received since the transaction was announced, we have decided not to proceed.
“Our strategy will continue to focus on providing higher value, integrated security solutions to our customers and leveraging our expertise in key sectors, geographies and service lines. We will continue to acquire businesses which add capability to G4S to help drive the business forward.
“The G4S business continues to develop positively with organic growth of 5% in the first nine months of 2011.”
The Acquisition, together with the rights issue, was conditional, inter alia, on securing 75 per cent shareholder support at a G4S shareholder meeting. There are no break fees payable pursuant to the termination of the SPA but fees and costs amounting to £50 million will have to be paid by G4S.
