G4S shares: another takeover bid arrives! What do I think shareholders should do next?

G4S shares leap as a second takeover bid arrives, this time from an American rival. Were I a holder of G4S shares, would I sell up or hold on?

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In mid-September, news broke of an unsolicited approach for G4S (LSE: GFS), the UK-based global security services company. This was pretty big news, given the lack of UK M&A (mergers and acquisitions) in 2020. As well as being a member of the FTSE 250 index, G4S is one of the world’s biggest employers, with 553,000 workers in 85 countries. Of course, news of this approach lit a fire under G4S shares.

G4S shares surge in September

G4S shares surged by a quarter on 14 September on news that rival GardaWorld had offered to buy G4S outright. Montreal, Canada-based GardaWorld is the planet’s largest privately owned security services company, with 102,000 staff and £2.1bn in yearly revenues. It’s 51%-owned by private-equity group BC Partners and had made three separate takeover approaches to G4S’s board. But it was rejected every time. Thus, GardaWorld went public, revealing an all-cash 190p-per-share offer that valued G4S at £3bn.

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G4S has had mixed fortunes over the past decade, to say the least. As one of the UK’s biggest outsourcers, it has yearly revenues of £3.5bn. But the company went from one crisis to another. It failed to supply enough security for the London 2012 Olympics, causing the British Army to step in. Even worse, it faced civil and criminal charges for wrongly charging the UK government for tagging offenders without tags. This led to big fines for the firm, with this reputational risk dumping G4S shares deep into the bargain bin.

When news broke of the takeover approach, my advice at the time for holders of the shares was simple. Like boxing matches, takeover bids usually involve several rounds. So I said that “GardaWorld could need to pay above £2 to seal this deal. Hence, were I a shareholder, I’d await a higher price before selling any shares!”

Allied Universal offers 210p each for G4S shares

Combining GardaWorld and G4S would create the world’s largest security company by far. This is where US rival Allied Universal Security Services comes in, gate-crashing the party last Wednesday with a higher offer for G4S. Allied is a security business with over 200,000 workers in the US, Canada, UK and Mexico. It offered £3.3bn for the British business, 10% above GardaWorld’s bid. G4S said Allied offered “at least 210p a share“, but rejected this latest bid because it undervalued the company and its shares. However, G4S said talks with Allied were continuing and it was looking into supplying it with information to perform the necessary due diligence.

G4S shares: I’d sit tight and await developments

As I write on Tuesday at lunchtime, G4S shares have leapt 4.6% to 214p, valuing the group at £3.3bn, a whisker above Allied’s 210p bid. Again, if I happened to be a holder of G4S shares, I’d still sit tight and do nothing. With two bidders throwing their hats into the ring, this is now a three-way fight between G4S itself, GardaWorld and Allied Universal. With G4S being the market leader in security services, bidders will have to dig deep to win this bout. I expect a final bid for the shares to be at least 225p-230p, so I would hang on to them today. After a terrible spring (when the shares fell below 70p on 3 April), 2020 has turned into an unexpectedly pleasant year for G4S shareholders!

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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