Stephan Crétier started GardaWorld in 1995 with a second mortgage of $25,000 on his home and the intent, however naive it seemed at the time, to build a “Canadian global champion” in security services. Now, he has a chance to pull off the deal of his life in an organized bidding contest many expect him to lose.
Mr. Crétier, Garda’s chairman and biggest minority investor, wants to buy British-based rival G4S PLC, the world’s largest security company. A formal auction to win G4S is being held this week by Britain’s takeover regulator.
Montreal-based Garda is bidding against another competitor, Santa Ana, Calif.-based Allied Universal, with five days of sealed bids currently scheduled.
“Anyone who has ever been involved in an auction process will be able to tell you the psychological effect a sealed bid process has on bids. Spoiler alert: It usually ends up in higher sums paid,” Morningstar equity analyst Michael Field said. “Long-suffering G4S shareholders will, as a result, be rubbing their hands together with glee.”
Like several other analysts who follow G4S, Mr. Field expects Allied to prevail, in part because it can likely squeeze more cost savings from combining the two businesses. Others familiar with the track record and motivation of Mr. Crétier, a former professional baseball umpire, say it would be unwise to count him out.
“Ultimately it comes down to whether GardaWorld wants to pay up,” Mr. Field said via e-mail. “Given their lowball approach so far, I feel they might get pipped at the end.”
Mr. Crétier, who is also Garda’s CEO, told The Globe and Mail last fall that when he took Garda private in 2012 with Rhône Capital, the idea to buy G4S was already hatched. London-based private equity firm BC Partners bought out Rhône in 2019 with Garda management taking a minority stake, and the plan was put into action.
For Mr. Crétier, it’s also personal. The Montreal entrepreneur sees taking over G4S as way to rescue a company founded by one of his mentors, Jorgen Philip-Sorensen. He says G4S lost its way after Mr. Philip-Sorensen’s death in 2010.
“Honestly, I believe we’ve got the horse here to make [Garda] number one in the world,” Mr. Crétier said in a November interview. “People that follow me and follow the company know that I am a disciplined investor. I persevere and I’m patient. And I never let go.”
It’s unusual but not unprecedented for Britain’s Takeover Panel to step in as referee to resolve a buyout battle. The last time it happened was 2018, when U.S. cable giant Comcast beat Rupert Murdoch’s 21st Century Fox in an auction for pay-television group Sky.
Garda and Allied have sparred over G4S for months, bringing uncertainty to the London-based business that counts 535,000 employees and a list of customers that includes the U.S. and British governments. As of Friday, both suitors had extended their existing bids to March 6. The situation was deemed untenable by the regulator, which said “an orderly framework” was needed to resolve the impasse.
GardaWorld ignited the fight in mid-September by going hostile with a takeover proposal after being privately snubbed by G4S three times over the summer. At the time, GardaWorld was willing to pay 190 pence per share for total cash consideration of £3-billion (about $5-billion). It has since hiked its offer to 235 pence or £3.68-billion ($6.5-billion).
Allied, whose biggest shareholders are private equity company Warburg Pincus and Canadian pension fund Caisse de dépôt et placement du Québec, made an offer in December of 245 pence per share or £3.8-billion (about $6.7-billion). Its bid has the support of the G4S board but investors have held out tendering their stock to see if a higher offer would materialize.
Securities brokerage Louis Capital surveyed 11 G4S institutional shareholders and concluded it could take a price of about 295 pence to complete a deal, based on the average of estimates given by those polled. “I would conclude they expect this auction to be a slug fest,” Louis analyst Tyler Tebbs said of the investors.
The bidding could intensify because G4S is a unique asset and neither Allied nor Garda will want to see a North American rival become the global industry leader, said analyst Robert Plant of Panmure Gordon. Both companies are also backed by private equity players, which are typically willing to take on more debt than publicly traded firms to fund buyouts, 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. 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 stakes in this fight are enormous from a labour perspective. No matter who wins G4S, the victor will own a corporate colossus that ranks in the top five of non state-owned private-sector employers globally, according to data from the Private Equity Stakeholder Project, a watchdog group that advocates for workers and other stakeholders affected by private equity investments.
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