European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 23 February, <a href="https://www.smartkarma.com/entities/g4s-plc" target="_blank" data-smartkarma-citation="entities:21948:1" rel="noopener">G4S PLC (GFS LN)</a> urged shareholders to accept Allied's offer as bid battle ends.
<div>
<ul>
<li>With both bids now final, the outcome depends on G4S shareholders.
<ul>
<li>the latest time by which either offeror must have satisfied the acceptance condition of its offer is 13.00 on 16 March 2021.</li>
<li>75% acceptances in the case of Allied Universal.</li>
</ul>
</li>
</ul>
</div>
The 245p offer values G4S at c. £3.8 bn, c. 4.3% higher than Garda's hostile offer.
<ul>
<li>
It represents approximately 0.8x EV/Fwd Revenue (vs. 0.6x for Securitas), 9x EV/Fwd EBITDA (vs. 8.1x for Securitas) and 17x P/Fwd EPS (vs. 13.2x for Securitas).
</li>
</ul>
This seems game over and the market, which had run ahead of itself on the back of Garda's interest, now believes that Allied is highly likely to win the contest.
<ul>
<li>Hedge funds are reducing positions.</li>
<li>G4S shares are trading tight at 243p, a gross spread of 0.8%, which does not leave much upside.</li>
</ul>
(This insight is labelled bearish as G4S is trading tight to terms)

On 23 February, G4S PLC (GFS LN) urged shareholders to accept Allied's offer as bid battle ends.


With both bids now final, the outcome depends on G4S shareholders.

the latest time by which either offeror must have satisfied the acceptance condition of its offer is 13.00 on 16 March 2021.
75% acceptances in the case of Allied Universal.




The 245p offer values G4S at c. £3.8 bn, c. 4.3% higher than Garda's hostile offer.


It represents approximately 0.8x EV/Fwd Revenue (vs. 0.6x for Securitas), 9x EV/Fwd EBITDA (vs. 8.1x for Securitas) and 17x P/Fwd EPS (vs. 13.2x for Securitas).


This seems game over and the market, which had run ahead of itself on the back of Garda's interest, now believes that Allied is highly likely to win the contest.

Hedge funds are reducing positions.
G4S shares are trading tight at 243p, a gross spread of 0.8%, which does not leave much upside.

(This insight is labelled bearish as G4S is trading tight to terms)

The contest for <a href="https://www.smartkarma.com/entities/g4s-plc" target="_blank" data-smartkarma-citation="entities:21948:1" rel="noopener">G4S PLC (GFS LN)</a> will be settled by an unfrequent head-to-head auction if neither GardaWorld or Allied Universal has sent a revised (read knockout) offer before 5.00pm on Saturday 20 February and prevailed by then.
<ul>
<li>
The procedure provides for up to five days of public bidding over sequential business days, with February 22 set as the first day of the auction.
</li>
</ul>
The Telegraph reported that the City expected GardaWorld to return well above Allied Universal’s offer.
<ul>
<li>G4S is a scarce asset.</li>
<li>It is the world’s largest security company, with £7 bn annual turnover and 530,000 employees worldwide.</li>
<li>G4S is trading at higher multiples than <a href="https://www.smartkarma.com/entities/securitas-ab" target="_blank" data-smartkarma-citation="entities:22476:1" rel="noopener">Securitas AB (SECUB SS)</a>.</li>
</ul>
For either bidder, it would be a transformational deal, with some economies of scale and, above all, long-term contracts and relationships:
<ul>
<li>Allied Universal, California based, has annual revenues of about £6 bn and 250,000 employees.</li>
<li>GardaWorld, backed by BC Partners, has annual revenues of about £2 bn and 100,000 employees.</li>
</ul>
Revised bids could come in the region of 282p, valuing the equity of G4S at c. £4,361 mn. Bids could go even higher.
<ul>
<li>G4S shares are trading at 269p, as investors bet that improved offers are coming.</li>
<li>The gross spread to a 282p hypothetical revised offer is 4.6%.</li>
<li>
HOLD your breath if you've already got the trade on, go LONG if not, although the latter involves both second guessing the bidders and a maximum downside of c. 9% (using 269p vs. Allied's last offer).</li>
</ul>

The contest for G4S PLC (GFS LN) will be settled by an unfrequent head-to-head auction if neither GardaWorld or Allied Universal has sent a revised (read knockout) offer before 5.00pm on Saturday 20 February and prevailed by then.


The procedure provides for up to five days of public bidding over sequential business days, with February 22 set as the first day of the auction.


The Telegraph reported that the City expected GardaWorld to return well above Allied Universal’s offer.

G4S is a scarce asset.
It is the world’s largest security company, with £7 bn annual turnover and 530,000 employees worldwide.
G4S is trading at higher multiples than Securitas AB (SECUB SS).

For either bidder, it would be a transformational deal, with some economies of scale and, above all, long-term contracts and relationships:

Allied Universal, California based, has annual revenues of about £6 bn and 250,000 employees.
GardaWorld, backed by BC Partners, has annual revenues of about £2 bn and 100,000 employees.

Revised bids could come in the region of 282p, valuing the equity of G4S at c. £4,361 mn. Bids could go even higher.

G4S shares are trading at 269p, as investors bet that improved offers are coming.
The gross spread to a 282p hypothetical revised offer is 4.6%.

HOLD your breath if you've already got the trade on, go LONG if not, although the latter involves both second guessing the bidders and a maximum downside of c. 9% (using 269p vs. Allied's last offer).


G4S has accepted and recommended the offer of £3.8 bn launched by the US firm Allied Universal, although the Canadian firm GardaWorld does not rule out rewarming the bid.
Allied Universal's bid is 245p. The takeover bid accepted by G4S represents a premium of 68% compared to its last price compared to the first offer in September.
<ul>
<li>245p is a fair offer according to my valuation.</li>
<li>This represents: 0.77x EV/Forward Revenue, 8.97x EV/Forward EBITDA and 17.07x Price/Forward EPS.</li>
<li>The Board has played well its strategy to extract a higher value from interested bidders.</li>
<li>This offer is c. 4% higher than the enhanced ("raised and final") offer from GardaWorld, issued on 2 December. After GardaWorld's bids, 9 December ('Day 53' after the initial public bid) was the last day for any competing offers.</li>
<li>Within 24 hours, Garda made a formal announcement to the market to say its latest 235p offer was not final (it reserved itself the right to increase its "raised and final" offer in case of any competing bid).</li>
</ul>
Garda strongly wants to acquire G4S, which is a unique asset. That said, the combination of lowball bids and aggressive behaviour towards G4S has not earned him any sympathies among G4S's Board and management.
G4S closed at 255p on 10 December, 4% higher than Allied's recommended offer. The market expects a final offer from GardaWorld.
<ul>
<li>The small margin between the two bids makes another increase likely.</li>
<li>If Garda raises its offer, it would be the fourth time since June it has done so.</li>
</ul>
The bidding war has prompted a remarkable recovery in the share price, which was 70p in April. It has gained 365% in eight months.
HOLD for an improved offer by Garda, which could come at around 260p (6% higher than Allied's). That level, although higher than my valuation of 245p, does not seem too value destructive. In any case, it gets nearer winner's curse, and a further bid from Garda could be answered by a raised offer by Allied.
<div>
<div>
Read-across: G4S is the latest UK company trading cheaply to fall into overseas rivals, with William Hill and RSA Insurance having been snapped up in the last months.
</div>
</div>

G4S has accepted and recommended the offer of £3.8 bn launched by the US firm Allied Universal, although the Canadian firm GardaWorld does not rule out rewarming the bid.
Allied Universal's bid is 245p. The takeover bid accepted by G4S represents a premium of 68% compared to its last price compared to the first offer in September.

245p is a fair offer according to my valuation.
This represents: 0.77x EV/Forward Revenue, 8.97x EV/Forward EBITDA and 17.07x Price/Forward EPS.
The Board has played well its strategy to extract a higher value from interested bidders.
This offer is c. 4% higher than the enhanced ("raised and final") offer from GardaWorld, issued on 2 December. After GardaWorld's bids, 9 December ('Day 53' after the initial public bid) was the last day for any competing offers.
Within 24 hours, Garda made a formal announcement to the market to say its latest 235p offer was not final (it reserved itself the right to increase its "raised and final" offer in case of any competing bid).

Garda strongly wants to acquire G4S, which is a unique asset. That said, the combination of lowball bids and aggressive behaviour towards G4S has not earned him any sympathies among G4S's Board and management.
G4S closed at 255p on 10 December, 4% higher than Allied's recommended offer. The market expects a final offer from GardaWorld.

The small margin between the two bids makes another increase likely.
If Garda raises its offer, it would be the fourth time since June it has done so.

The bidding war has prompted a remarkable recovery in the share price, which was 70p in April. It has gained 365% in eight months.
HOLD for an improved offer by Garda, which could come at around 260p (6% higher than Allied's). That level, although higher than my valuation of 245p, does not seem too value destructive. In any case, it gets nearer winner's curse, and a further bid from Garda could be answered by a raised offer by Allied.


Read-across: G4S is the latest UK company trading cheaply to fall into overseas rivals, with William Hill and RSA Insurance having been snapped up in the last months.



GardaWorld has tabled a real offer, at last, by increasing the consideration offered for <a href="https://www.smartkarma.com/entities/g4s-plc" target="_blank" data-smartkarma-citation="entities:21948:1" rel="noopener">G4S PLC (GFS LN)</a>.<ul>
<li>Increased and final cash offer of 235p per G4S Share, valuing the equity of G4S at £3.68 bn. <ul>
<li>23.6% above its initial offer and 12% above Allied's indicative offer.</li>
<li>0.75x EV/NTM revenue, 8.7x EV/Forward EBITDA, 16.4x P/Forward EPS (Capital IQ consensus).</li>
<li>Assumes net debt of £1.6 bn</li>
</ul>
</li>
<li>
Acceptance conditionreduced from 90% to 50% plus one G4S Share.</li>
<li>Agreement with the G4S UK Pension Trustee on a £770 mn support package comprising cash and other measures.</li>
<li>European Union, United States and Canada antitrust clearances in respect of the offer have been obtained.</li>
<li>Acceptances deadline: 1.00 p.m. (London time) on 16 December 2020.</li>
<li>
The final offer may not be so final, as per GardaWorld: "The financial terms of the final offer are final and will not be increased, save that Fleming reserves the right to revise the financial terms of the final offer where: (i) there is an announcement of a firm intention to make an offer for G4S by any third party; or (ii) the Panel otherwise provides its consent."</li>
<li>The raised offer may not still be to G4S's liking: "GardaWorld looks forward to discussing the Final Offer with G4S shareholders".</li>
</ul><div>
<div>
In my Insight about Allied's interest, I mentioned that an improved offer could come at around 227p (blended multiple of EV/NTM EBITDA and P/E).
<ul><li>The improved offer has come 3.5% higher.</li></ul>
</div>
<div>Putting G4S on the median EV/NTM EBITDA (Capital IQ consensus), 8.89x vs. 8.92x for Securitas, the implied equity value would be 245p, the level at which G4S is trading.</div>
</div><div>I do not discard an improved offer by Allied (and Garda reserves the right to raise its bid should a better offer arrives). G4S is a market leader and a unique asset. Recommendation is HOLD.</div>

GardaWorld has tabled a real offer, at last, by increasing the consideration offered for G4S PLC (GFS LN).
Increased and final cash offer of 235p per G4S Share, valuing the equity of G4S at £3.68 bn. 
23.6% above its initial offer and 12% above Allied's indicative offer.
0.75x EV/NTM revenue, 8.7x EV/Forward EBITDA, 16.4x P/Forward EPS (Capital IQ consensus).
Assumes net debt of £1.6 bn



Acceptance conditionreduced from 90% to 50% plus one G4S Share.
Agreement with the G4S UK Pension Trustee on a £770 mn support package comprising cash and other measures.
European Union, United States and Canada antitrust clearances in respect of the offer have been obtained.
Acceptances deadline: 1.00 p.m. (London time) on 16 December 2020.

The final offer may not be so final, as per GardaWorld: "The financial terms of the final offer are final and will not be increased, save that Fleming reserves the right to revise the financial terms of the final offer where: (i) there is an announcement of a firm intention to make an offer for G4S by any third party; or (ii) the Panel otherwise provides its consent."
The raised offer may not still be to G4S's liking: "GardaWorld looks forward to discussing the Final Offer with G4S shareholders".


In my Insight about Allied's interest, I mentioned that an improved offer could come at around 227p (blended multiple of EV/NTM EBITDA and P/E).
The improved offer has come 3.5% higher.

Putting G4S on the median EV/NTM EBITDA (Capital IQ consensus), 8.89x vs. 8.92x for Securitas, the implied equity value would be 245p, the level at which G4S is trading.
I do not discard an improved offer by Allied (and Garda reserves the right to raise its bid should a better offer arrives). G4S is a market leader and a unique asset. Recommendation is HOLD.

G4S Deploys Its Defences and GardaWorld Increases Its (Final?) Offer

US company Allied Universal has discussed a "highly conditional indicative offer" of "at least 210 pence" per share, subject to due diligence, with G4S' Board.
<ul>
<li>This could be the opening salvo in a bidding war for G4S.</li>
<li>According to press, G4S had been inviting offers from other industry players in the hope of a white knight arising.</li>
<li>"The board carefully considered this proposal with appropriate advice from the company's financial and legal advisers and rejected it on the basis that the highly conditional offer, at 210p per share, significantly undervalues G4S and its prospects."</li>
<li>G4S said that it was “engaged with Allied and an independent consultant to establish a process through which commercially desensitised information may be provided”.</li>
</ul>
Allied Universal currently enjoys some advantage over GardaWorld, whose 190p hostile bid has been strongly dismissed by G4S.
G4S' shares closed at 214p on 5 November.
Considering the hostile offeror and white knight, it is likely that a familiar bidding war will ensue. I recommend LONG G4S at the current price of 214p. An improved offer could come at around 227p (blended multiple of EV/NTM EBITDA and P/E). That would be a nearly 20% higher than GardaWorld's hostile offer, would reflect G4S' better prospects and would be more palatable to its Board.

US company Allied Universal has discussed a "highly conditional indicative offer" of "at least 210 pence" per share, subject to due diligence, with G4S' Board.

This could be the opening salvo in a bidding war for G4S.
According to press, G4S had been inviting offers from other industry players in the hope of a white knight arising.
"The board carefully considered this proposal with appropriate advice from the company's financial and legal advisers and rejected it on the basis that the highly conditional offer, at 210p per share, significantly undervalues G4S and its prospects."
G4S said that it was “engaged with Allied and an independent consultant to establish a process through which commercially desensitised information may be provided”.

Allied Universal currently enjoys some advantage over GardaWorld, whose 190p hostile bid has been strongly dismissed by G4S.
G4S' shares closed at 214p on 5 November.
Considering the hostile offeror and white knight, it is likely that a familiar bidding war will ensue. I recommend LONG G4S at the current price of 214p. An improved offer could come at around 227p (blended multiple of EV/NTM EBITDA and P/E). That would be a nearly 20% higher than GardaWorld's hostile offer, would reflect G4S' better prospects and would be more palatable to its Board.

United Kingdom

G4S is a British multinational private security company that provides integrated security solutions globally. Its core activities include manned security services, security systems (such as access control and CCTV), monitoring and response services, and secure prisoner transportation. The company was formally established in July 2004 through a merger and is headquartered in London, England.

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G4S (GFS LN)

G4S: White Knight Prevails

Allied's final offer, c. 4.3% higher than Garda's, represents c. 9x EV/Fwd EBITDA and 17x P/Fwd EPS. Game over. Market believes Allied is highly...

Jesus Rodriguez Aguilar

G4S Heading for Takeover Panel Auction

Market bets on improved offers, which could come c. 282p (gross spread 4.6%) or higher. HOLD your breath if you have the position, LONG if not...

Jesus Rodriguez Aguilar

Allied Universal's Agreed Offer

HOLD for an improved offer by Garda, at around 260p (6% higher than Allied's). That level, nearer winner's curse, does not seem too value...

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G4S Deploys Its Defences and GardaWorld Increases Its (Final?) Offer

On a median EV/NTM EBITDA (Cap IQ), implied equity value would be 245p. I do not discard an improved offer by Allied (and Garda reserves the right...

Jesus Rodriguez Aguilar

G4S Playing Hard-To-Get

Considering the hostile offeror and white knight scenario, it is likely that a familiar bidding war will ensue. An improved offer could come at...

Jesus Rodriguez Aguilar

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