The vainglorious attempt by G4S to provide everything from security guards to office cleaners through a £5.2 billion takeover of Danish services group ISS finally collapsed yesterday as a last-ditch bid to garner shareholder backing failed.
The deal had come under fire from big institutions such as Schroders, the Co-op and Artemis, which had voiced a variety of concerns about the transaction including over the price, funding and the integration risks posed by such a transformational deal. Its failure will still cost G4S £50 million in terms of fees and the cost of derivatives to cover against the risk of currency movements as a result of taking over a Danish company.
While a number of leading shareholders had been contacted by the group before the merger was announced, it started to flounder as mid-level investors increasingly raised objections. And earlier this week Harris Associates, the second biggest shareholder with 5 per cent, said it would vote against. G4S shares had fallen by a fifth since the announcement.
G4S, which has had experience of big deals having been created from the merger of Group 4 and Securicor, had planned to pay for ISS with a deeply discounted £2bn rights issue and £3.7bn of borrowings. However, the borrowings in particular spooked shareholders given the fear stalking the markets as a result of the European debt crisis, with many companies seeking to reduce gearing. They were also concerned at G4S moving into areas such as cleaning and catering, which are specialisms of ISS.
It is the second time in just over a year that a FTSE 100 company has attempted a transformative deal only to have its ambitions dashed by a shareholder backlash, with Prudential pulling its bid to buy Asian insurer AIA for £25bn in 2010.
G4S chief executive, Nick Buckles, said: "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."
He and the chairman, Alf Duch-Pederson, had been conducting a furious lobbying campaign in recent days to get the deal back on track. However, Mr Duch-Pederson said: "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 ... 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 was advised on the deal by Deutsche Bank and Greenhill. Goldman Sachs and Morgan Stanley advised ISS, which is owned by Goldman Sachs Capital Partners and Swedish private equity firm EQT Partners.
Shareholders are starting to get serious
With the second multibillion pound takeover blocked by shareholders in 13 months, companies – and their boards – have been put on notice. They can no longer expect to listen to the siren-calls of investment bankers and expect shareholders to simply wave through the deals dreamed up as a result. Shareholders appear to be heeding calls to take "stewardship" of the companies they own seriously.
Nonetheless Nick Buckles, above, chief executive of G4S, will almost certainly live to fight another day following the collapse of his £5.2bn bid to takeover Danish support services group ISS. His chairman Alf Duch-Pedersen, right, may find the going tougher.
As was the case with Prudential following its failed attempt to buy the Asian insurer AIA in 2010, much of the criticism is being directed at the chairman. Mr Duch-Pedersen will take heart from the fact that Harvey McGrath, the chairman of Prudential, refused to fall on his sword. But Prudential was helped by its influence in the City, and Mr Duch-Pederson will now have to spend some time smoothing some ruffled feathers if he is to repeat Mr McGrath's trick.