G4S, the FTSE 100 firm once known as Group 4 Security, targeted troubled rival ArmorGroup yesterday with a £43.6m cash bid for the company.
ArmorGroup, which provides security guards to a dozen British and American embassies across the world and has teams in Iraq and Afghanistan, ran into problems after an incident in September, involving the US firm, Blackwater, in which 17 Iraqi civilians were killed. The killings prompted the Iraqi government and Congress to draw up laws designed to bring private security companies under control. The Afghan government has also become much stricter on private security firms.
The drop-off in lucrative contracts led ArmorGroup, which has 8,500 employees and 38 offices in 27 countries, to warn dramatically on profits last year. Its share price plunged and David Seaton, chief executive, who had been in the post for only 18 months, stepped down. It is chaired by former Conservative foreign secretary Sir Malcolm Rifkind.
Last month, ArmorGroup admitted that its weak share price had flushed out a number of bidders, rumoured to have included British rival Control Risks and New York-based risk consulting company Kroll. Baird Capital, the private equity group that backed the company's buyout in 2003, was also understood to be interested in bidding.
But yesterday Baird said it would use the 32% of the company it still owns to vote in favour of G4S's 80p-a-share offer. The company's board and two further major shareholders - Industrial & Financial Investments Company and Landsdowne Partners - are also supporting the bid, giving G4S acceptance from shareholders with more than 53% of ArmorGroup.
Describing the offer as "full and fair", Rifkind added that the offer "gives ArmorGroup shareholders the prospect of a cash exit at an attractive price when considered against the potential of ArmorGroup as a standalone business".
But while the price marks a 127% premium to the company's share price the day before it admitted it had received a number of approaches, it is still below the 100p at which the stock was trading a year ago and well under the more than 270p at which they traded just a few months after the firm's flotation in December 2004.
G4S employs 530,000 people in more than 110 countries including Iraq where it has about 800 people on a firefighting contract with the US military. Buying ArmorGroup will cement its position and add operations in four new countries: Sudan, Afghanistan, Algeria and Rwanda. ArmorGroup has also developed expertise in mine clearance and has teams dealing with kidnappings, both areas in which G4S has no experience.
Nick Buckles, chief executive of G4S, described the deal as an important and logical step. "ArmorGroup's experience in providing protective security, its international presence and strong customer relationships mean that it is a natural fit with our existing business," he said.
G4S is no stranger to controversy. The company, the world's second largest security firm, has been accused of driving down wages in countries where it operates and denying workers their basic rights. A US union, representing 1.8 million mainly low-paid workers across the US, spearheaded a long-running campaign against the company which it argued cut healthcare and other benefits to its staff.