Security firm to serve school meals

Security group G4S is to start dishing up school dinners and cleaning hotel rooms following a £5.2 billion takeover deal unveiled today.

The group - better known for running prisons and transferring cash - has snapped up Denmark's ISS in a deal creating a business with a vast workforce of around 1.2 million people.

West Sussex-based G4S currently makes 80% of its revenues from security work but after the deal around 45% will come from services such as cleaning offices and washrooms, portering and catering.

ISS, which dates back to 1901 and launched in the UK in 1968, boasts high-profile contracts with Citigroup and the Foreign and Commonwealth Office.

It also provides catering services in schools, hospitals and colleges, cleans over 2.5 million hotel bedrooms a year and runs switchboards, reception and mailrooms for businesses.

The deal is worth £1.5 billion to ISS's private equity owners EQT and GS Capital, while G4S will take on about £2.5 billion of extra debt as a result of the acquisition even after £2 billion has been raised from shareholders.

G4S, which is to provide guards at the London Olympics and recently won a contract for court services in the north of England, said the tie-up will lead to cost savings of £100 million a year by 2014 and will transform the group, which currently employs 635,000 people.

In the UK, both companies employ about 40,000 staff. The combined revenues of the group will be £16 billion, more than double the £7.4 billion of G4S in 2010.

G4S, which was already the FTSE 100 Index's biggest employer, will have a total of 1.2 million employees - making it one of the biggest private employers in the world.

Shares dived 20% as investors balked at the scale of the proposed deal.

Kevin Lapwood, an analyst at Seymour Pierce, said: "Although G4S has in the past proved effective at integrating large acquisitions, this will double the size of the group and there is bound to be some transactional risks in the short term."

But chief executive Nick Buckles said: "Deals like this only come along every five to seven years - this is transformational and market changing.

"We think we have got the track record to make it work."

The merger will see G4S cut some 2,000 jobs across 50 countries mainly at corporate offices, with less than 10% of the cuts being made in the UK.

However, G4S said it will take on some 5,000 jobs a year in the UK as demand for outsourcing from Government departments and businesses grows.

G4S will keep its head office in Crawley. It also operates offices in Sutton, while ISS has UK offices in Woking and London.

PA