GardaWorld’s takeover target, G4S, has another suitor

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Canadian security company GardaWorld now faces a takeover fight for British-based G4S PLC after confirmation that U.S. rival Allied Universal Security Services LLC has also made an unsolicited takeover bid.

The situation is made more intriguing by the fact that a big Allied shareholder is pension fund giant Caisse de dépôt et placement du Québec, which means Montreal-based GardaWorld finds itself in competition with the biggest institutional investor in its home town to win the security services company.

GardaWorld’s chief executive officer raised questions Tuesday about whether the Caisse backs Allied’s offer, given G4S’s sometimes-checkered operational history. The pension fund shot back, saying the company is sending conflicting messages.

Earlier in the day, G4S confirmed that it received what it called a “highly conditional” takeover proposal from Allied worth “at least 210 pence per share," subject to due diligence. The board weighed the offer with advice from outside financial and legal advisers and rejected it on the grounds that it “significantly undervalues G4S and its prospects,” G4S said in a statement.

“The board of G4S firmly believes that the company has a strong independent future,” the British security provider said, underscoring the odds against a successful deal with either Allied or Garda. G4S has engaged with Allied and an independent consultant to set up a process to share limited information about its business, the company said.

G4S shares rose 3 per cent to close at 211 pence in Tuesday trading in London. The gain gives the company a market capitalization of about £3.3-billion ($5.66-billion).

GardaWorld unveiled its intentions to acquire much-bigger G4S in September, appealing to G4S shareholders to force the board into talks after being snubbed in three approaches since June. It is offering 190 pence for each G4S share, saying the company has not delivered for shareholders, customers, employees or the public and that it needs new, professional and experienced leadership to bolster its prospects.

“Instead of shadowboxing, the G4S board should without delay engage with us in the best interest of shareholders,” GardaWorld CEO Stephan Crétier said in an e-mailed statement Tuesday, adding that an Allied takeover of G4S would face “insuperable anti-trust issues” in the United States.

"It is also hard to imagine” the Caisse supporting a non-conditional offer by Allied given G4S’s environmental, social and corporate governance (ESG) “failings” and its blacklisted status with several major pension funds, Mr. Crétier said in the statement.

“Unlike Allied, which has made ‘a highly conditional indicative offer subject to substantial due diligence requirements,’ our financing is real, our offer is a matter of public record and our intent is serious.”

Caisse announced in February, 2019 a major investment in Allied Universal as part of a wider transaction that valued the company at more than US$7-billion. It is now Allied’s second-biggest shareholder, with a roughly 35-per-cent stake. The biggest investor is New York-based private equity company Warburg Pincus, with a 59-per-cent stake.

The pension fund was also prepared to invest in Garda, offering the company more than US$1-billion in exchange for preferred shares to help finance an offer for G4S, said a source familiar with the situation. A deal was near completion just weeks ago but Garda turned down the money in favour of a funding offer from U.S. private equity company HPS Investment Partners, the source said. The Globe and Mail is not identifying the person because they were not authorized to speak about the matter.

Maxime Chagnon, a Caisse spokesperson, confirmed the existence of a potential partnership between the Caisse and Garda but declined to reveal any details.

“There is something fundamentally inconsistent in Garda’s hostile and aggressive approach in the public sphere,” Mr. Chagnon said in an e-mailed statement. “One day it approaches [the Caisse] about a partnership, then it withdraws from its agreement. One day it wants to acquire G4S and the next it is criticizing the ESG aspects of the company it wants to buy.”

The Caisse is one of the world’s most respected investors when it comes to ESG criteria, and applies them rigorously and consistently, Mr. Chagnon said. Garda “seemed to understand this perfectly well during our discussions” on how it would apply its stringent ESG criteria to G4S, he said.

G4S has been trying for years to repair its reputation in Britain after failing to provide enough personnel to ensure security during the 2012 Olympic Games in London. The deficiency prompted the government to dispatch members of its armed forces.

More recently, the British government took over the management of a prison in Birmingham from G4S in 2018 after an inspection found that staff locked themselves in offices to avoid prisoners who were using drugs and violence with near impunity.

In November, 2019, Norges Bank Investment Management, which manages government pension funds for the government of Norway, said it decided to stop investing in G4S and sold its shares in the company after its ethics council concluded that there is “unacceptable risk that the company contributes to, or is responsible for, serious or systematic human-rights violations.”

The Norges investigation centered on G4S’s operations in the United Arab Emirates and Qatar, where its employees are mostly migrant workers. The probe found that workers had to pay recruitment fees to work for the company, that they received far lower wages than agreed and that in the Emirates the workers got their passports confiscated.

Sophie McMillan, a G4S spokeswoman, said the company has invested substantial resources to ensure that its standards meet best practices and that G4S is an employer of choice.

More generally, the current directors and senior management team of G4S inherited a number of long-standing, significant legacy issues, Ms. McMillan said. “The vast majority of these legacy issues have been successfully resolved,” she said.

With a report from Reuters