Accordingly, the Board of Directors of G4S will not put any resolutions to the shareholder meeting convened for tomorrow, and will not be proceeding with the rights issue or other financing required for the acquisition.
Alf Duch-Pedersen, the chairman of G4S, excplained: “We believe that developing our business towards an enhanced security and integrated facilities services model is the way forward in the longer term, and we saw ISS as an excellent opportunity to achieve this aim.”
He continued: “However, following the announcement of the acquisition shareholders have raised concerns, particularly over its scale and perceived complexity against the backdrop of current macro-economic uncertainty.”
The chairman explained: “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 and, while they continue to express their overwhelming support for the standalone G4S business and its management, the Board has listened carefully to concerns raised by shareholders regarding the acquisition and has concluded that in the circumstances it’s inappropriate to proceed.”
Duch-Pedersen also stated: “G4S is a successful and well managed business. It has delivered year-on-year earnings and dividend growth since the group was created in 2004 from the merger of Securicor and Group 4 Falck. G4S has consistently generated returns on invested capital well above its cost of capital, and delivered average shareholder returns of 13.3% per year since the start of 2005.”
In conclusion, he said: “The Board and management of G4S remain focused on continuing to generate sustainable shareholder value and driving business success both organically and through targeted acquisitions.”
Importance of shareholders’ views
Nick Buckles, the chief executive of G4S, said: “We are obviously disappointed that we’ve not been able to complete this transaction. We felt strongly that the combination of G4S and ISS would create a market-leading integrated security and facilities services company which would be well placed to meet the growing needs of customers and deliver significant investment returns at the same time.”
Buckles went on to state: “However, 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.”
Looking ahead, Buckles explained: “Our strategy will continue to focus on providing higher value, integrated security solutions to our customers and leveraging our expertise in key sectors, geographies and service lines. We will continue to acquire businesses which add capability to G4S to help drive the business forward.”
As far as Buckles is concerned, the G4S business continues to develop positively “with organic growth of 5% in the first nine months of 2011.”
The acquisition, together with the rights issue, was conditional, inter alia, on securing 75% shareholder support at a G4S shareholder meeting. There are no break fees payable pursuant to the termination of the share purchase agreement.
The majority of the fees and costs to be paid in connection with the acquisition and the rights issue was only payable if the acquisition completed. However, certain of these fees and costs, amounting to approximately GB pound 50 million, will be incurred by G4S in any event.
These fees relate principally to commitment fees in connection with the financing of the acquisition, but also include the net costs of derivative hedging instruments entered into to hedge the foreign exchange risk associated with raising funds in sterling to effect a purchase in Danish Krone and up to GB pound 2 million payable to ISS’ auditors in relation to certain work carried out in respect of the acquisition.
These fees and costs will be treated as exceptional items in the G4S accounts for the year ended 31 December 2011.
Interim Management Statement: October 2011
G4S recently reported on trading for the year to date, including an overview of financial performance to 30 September 2011.
