"G4S acquires ISS," the home page of the G4S website declares. We'll be the judge of that, shareholders might fairly respond: the vote is on Wednesday and your chances of success are looking less than terrific.
Indeed so. Harris Associates, with almost 5% of the shares, today became the latest G4S investor to declare itself against the proposed £5.2bn acquisition. Other "antis" include hedge fund Parvus (3.7% holding), Artemis (about 1%) and Schroders (about 1%). On the "pro" side, only Kames Capital (1.6%) is a declared supporter so far.
It is still possible for G4S chief executive Nick Buckles to command the necessary 75% majority among voting shareholders and thus bag his prey – but it would require the silent super-majority, if it exists, to turn out in force. The arithmetic currently looks extremely tight.
If Buckles loses, expect to hear grumbles about the failure of risk-averse institutional shareholders to back the expansionary visions of successful British managements. It's a view, but would it really be the central story? The alternative interpretation is more persuasive: that investors, burned over the years by too many value-destroying takeovers, have reasonably raised the pass mark on deals they are prepared to support.
In the case of G4S/ISS, the risks were blindingly obvious on day one: G4S would take on a lot more debt, as well as issuing new shares worth £2bn via a rights issue; it would be managing a workforce numbering an astonishing 1.2m; and it would expanding from security services into contract catering, cleaning and a variety of other services. Nor could G4S claim it was getting an outright bargain from private-equity vendors who had already made two attempts at selling.
Of course, a purchase of ISS could also carry rewards – Buckles spoke about a "double digit" return on invested capital within three years, "significant" growth opportunities and £100m of cost savings. Okay, but G4S's returns already look excellent – and this is a company that has done well by bolt-on deals, rather than all-in acquisitions. Why change the script, and clock up £128m in banking, legal and advisory fees?
If shareholders end up asking G4S to stick to what it does best, it would be a reasonable stance. Call it shareholder democracy in action, rather than a devastating blow to the ambitions of British managers. Superior deals, one suspects, will still receive the traditional mega-majorities in favour.
