The company that recently took over Birmingham Prison is facing a battle to win support from shareholders following its “monster” £5.2 billion takeover deal for Danish cleaning and services firm ISS, according to reports.
The West Sussex-based Prisons and security group G4S plans to fund the acquisition by launching a £2 billion cash call to shareholders and raising up to £3.7 billion in debt.
However, a governance body that advises 1,700 large investors, has expressed concern about the risks of integrating two big companies and the debt burden that would be added to G4S’s balance sheet.
According to reports, Institutional Shareholder Services has also said the acquisition is a departure from the strategy set out by G4S’s chief executive Nick Buckles.
The lobby group has recommended that shareholders vote against the transaction on November 2, when G4S will need three-quarters of the votes cast in its favour.
It said: “It’s unclear whether the upside in this deal compensates shareholders for the risk they will bear. On the other hand, we see a clear upside should shareholders vote against the transaction.”
G4S, which is meeting shareholders ahead of the vote, has said the deal has “compelling and strategic logic”.
However, one institution said: “This is a monster. Putting that amount of debt on the balance sheet is risky, so we’re lukewarm at best.”
The company currently makes 80 per cent of its revenues from security work but after the deal around 45 per cent will come from services such as cleaning offices and washrooms, portering and catering.
ISS, which dates back to 1901 and launched in the UK in 1968, boasts high-profile contracts with Citigroup and the Foreign and Commonwealth Office.
It also provides catering services in schools, hospitals and colleges, cleans more than 2.5 million hotel bedrooms a year and runs switchboards, receptions and mailrooms for businesses.
In the UK, both companies employ about 40,000 staff. The combined revenues of the group will be £16 billion, more than double the £7.4 billion of G4S in 2010.
G4S, which was already the FTSE 100 Index’s biggest employer, will have a total of 1.2 million employees - making it the second-largest private employer in the world.