The hottest stock to own in London today is G4S (LSE: G4S), I believe. The G4S share price zoomed up by a quarter (25%) in heated trading on Monday. But why the large leap?
Hostile takeover fires up G4S share price
Big share movements are usually accompanied by big announcements – and this one was a doozy. GardaWorld – a Montreal-based rival of G4S backed by private-equity group BC Partners – had made an offer to buy the company in its entirety.
GardaWorld is the world’s largest privately-owned security services company and a major rival of G4S. And news that it had offered 190p for each G4S share sent the G4S share price surging from Friday’s close of 145.9p to 182.45p, up 36.55p.
This approach values G4S at around £3bn, but this isn’t the first bid approach for it from the firm. Indeed, the Canadian company has approached G4S three times in three months, only to be rebuffed every time.
Scandals crushed the share price
G4S is of Britain’s biggest outsourcers, employing over 553,000 people worldwide and raking in yearly revenues of £3.5bn. However, the company has lurched from one crisis to another over the past decade, hitting the G4S share price pretty hard.
I’d go as far as to say that its leaders became expert in ‘finding landmines with their feet’. Its failure to recruit enough staff even saw the British Army drafted in to help with security for the London 2012 Olympics.
Worse was news that G4S wrongly charged the UK government for tagging offenders without tags. This resulted in it paying £121m in compensation to the Ministry of Justice in 2014. In July, G4S accepted responsibility for three counts of fraud and was fined a further £44.4m by the Serious Fraud Office. Furthermore, three ex-employees currently face criminal charges for fraud.
GardaWorld appeals to G4S shareholders
Having been rejected by the board, GardaWorld took its offer directly to shareholders. The Canadian firm revealed its latest approach in a letter dated 31 August to the G4S board.
In this letter, it revealed its latest all-cash offer of 190p per share. This represents an 86% premium to the G4S share price before the initial approach on 15 June. It’s also a 30% premium to Friday’s closing price – hence the steep leap in the share price on Monday.
What should G4S shareholders do now?
If I were a shareholder, I wouldn’t rush into any decision. GardaWorld has 25 years of experience in this sector and would no doubt be a decent steward of the business. After all, it would be hard to do worse than G4S bosses have done over the past decade.
GardaWorld must be seriously interested in acquiring it, having made those three unsolicited bid approaches before going public. Also, BC Partners (GardaWorld’s 51% shareholder) is an investor with seriously deep pockets and will have no problem raising the necessary financing to become the new owner.
Combining the two would create the world’s largest security company. This kind of dominance doesn’t come cheap, which makes G4S shares very valuable indeed to GardaWorld.
To sum up, I suspect this takeover bid is just the first play for G4S. Given the strategic synergies on offer, GardaWorld could need to pay a G4S share price above £2 to seal this deal. Hence, were I a shareholder, I’d await a higher price before selling any shares!
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.