Nick Buckles, the chief executive of G4S, has admitted he “misread the markets” following the collapse of his ambitious 5.2 billion pounds ($8.3 billion) merger with Danish cleaning company ISS to create a world securities and cleaning giant.
In a frank interview with the Financial Times, Buckles said: “We brought a good deal to shareholders but misread the market. In retrospect, shareholders were not happy with the size and scale of the deal. Our sector hasn’t seen a lot of rights issues and that has troubled investors.”
G4S aborted the merger less than 48 hours ahead of a potentially humiliating defeat at its general meeting, after a number of shareholders threatened to vote down the deal.
The purchase would have created the world’s biggest security and cleaning services company and the second largest private sector employer after Walmart , the US retailer, with 1.2 million employees in more than 130 countries.
Buckles, who has attended 50 meetings with 200 shareholders over the past fortnight, admitted that he had failed to adequately pre-market the deal to investors.
“Pre-marketing is now the challenge,” he said, while adding that investors clearly liked the business as it is. “The clear message from shareholders is that they like the way we are.”
The disintegration of one of this year’s biggest mergers in the wake of a publicly-fought battle with shareholders has dealt a blow to Buckles, who has built the company into a security giant that runs prisons, cash-guarding services and events including next year’s London Olympics.
But while some analysts suggested the chief executive would be unable to survive, investors indicated they would support Buckles, and there have been no calls as yet for him to resign.
“It’s been a travesty,” said Kevin Lapwood, analyst at Seymour Pierce, who accused shareholders of being shortsighted by failing to support the merger. “This was the Nick Buckles deal that leaves him with little choice to walk away but will leave the company rudderless.”
Parvus Asset Management, one of the first activists to publicly oppose the deal, called for the head of Alf Duch-Pedersen, the chairman. “Some deals should never leave the boardroom. The board approved the U-turn in strategy and the chairman has to take responsibility. The [failure] should also make the company reassess its relationship with its advisers.”
G4S said it had incurred unrefundable costs of about 50 million pounds preparing for the acquisition, mainly to secure financing but also related to hedging costs and extra work done by its auditors.
Although the disintegration of the deal marks a triumph for investor activism, it is also a setback for the M&A market, which viewed the success of the acquisition as a test of both corporate and investor appetite for further large-scale takeovers.
The abandoned sale is also a blow to ISS’s owners, EQT Partnersand Goldman Sachs Capital Partners , as it marks their third attempt to offload the service company they had bought in 2005 in a $4.5 billion deal. Last year, talks with private equity group Apax over a sale failed, while an alternative plan to list ISS was stopped earlier this year.
People close to the situation said G4S’ banks had approached the owners over the past few days to renegotiate the deal, but backed away after realising that shareholders’ main bone of contention had not been price but the risks associated with the transaction.
“If they would have asked for a price reduction of 10 or 15 per cent Goldmanand EQT would have been prepared to discuss that. But it never went that far,” one person familiar with the deal said.
ISS’ owners are now looking to hold on to the company for a number of years. Insiders said the most likely way of disposing the company would be through a stock market listing over the medium term.
In Copenhagen, ISS executives expressed regret at the aborted takeover. “The combination of ISS and G4S would have been a real game changer in the global service industry,” said Jeff Gravenhorst, chief executive of ISS.