G4S secures a solid price even as GardaWorld’s pursuit ends in failure

In simpler times, ESG stood for excessive salivation glands, an unfortunate condition whose sufferers cannot control what comes out of their mouth. The old meaning has only coincidental relevance to Stephan Crétier, GardaWorld’s firebrand founder and chief executive.

GardaWorld cited environmental, social and governance concerns as a reason for abandoning its pursuit of G4S at the last possible moment. “There can be no better owner for G4S than GardaWorld,” said Crétier. “But we are disciplined buyers and we will not overpay for a company with systemic ESG issues that continue to come to light.”

For the head of a security company, Crétier shows a surprising reluctance to being guarded. But what were the ESG issues he mentions that emerged between Saturday evening, when The Takeover Panel put GardaWorld into an auction against US-based rival Allied Universal, and Monday morning, when the Canadian group stuck with an already rejected £3.7bn offer? The only non-takeover press about G4S over the weekend related to its role at the UK quarantine hotels — an unproblematic contract when compared with historic ESG red flags, such as the blacklisting of the stock in 2019 by Norway’s sovereign wealth fund in relation to Middle East contracts.

But then, GardaWorld could easily have declared its 235p a share offer final when submitting the bid in early December or at any point afterwards. The only big ESG-relevant story in the interim was in the Tampa Bay Times, which reported that GardaWorld’s armoured truck business took “dangerous shortcuts”. (GardaWorld has called the report unfounded.)

Crétier also complains that “without satisfactory engagement from G4S we have been unable to complete our due diligence.” People in the G4S camp deny that claim, saying both bidders were given the same access to data. They also highlight that on first revealing the pursuit in September, Crétier published a letter he sent to G4S chairman John Connolly the month before that said: “We have collectively completed our due diligence and do not need access to management or the company.”

None of the excuses sounds as plausible as the obvious explanation, which is that Crétier could not participate in an auction his backers did not want to win. GardaWorld is already burdened by debts of about seven times its underlying earnings, as well as by a tight ownership structure that makes equity issues impractical. Deal financing relies on the private equity group BC Partners, its 51 per cent shareholder. Absent BC’s support, GardaWorld would be in a race against time to find an alternative way to fund the sweetener. The suspicion is that time ran out.

A curtailed auction meant G4S shares slid nearly 10 per cent on Monday, yet its longer term investors cannot complain too much. Allied Universal’s winning £3.8bn bid has an enterprise value of about 14 times last year’s headline operating earnings, almost on par with Securitas, even though the Swedish group lacks G4S’s form for booking perennial litigation and restructuring costs as exceptional items. It is also 68 per cent more than shareholders were willing to pay in September, before GardaWorld launched into its overly aggressive bear hug.

And although Allied Universal’s offer of 245p is a penny less than the share price when Ashley Almanza took over as chief executive in 2013, the company has thrown off £1.2bn in mostly debt-funded dividends over his tenure.

In the end, Crétier’s relentless attacks helped secure G4S shareholders a very good deal — albeit not the intended one. He is unlikely to be the last head who invokes ESG to explain away a strategy failure.

Margins for error

Retail broker IG Group has suspended margin trading in about 900 US and UK shares, or just under 8 per cent of the equity markets it offers. Spread betting customers were told in recent days to stump up enough cash to cover positions fully in affected stocks by the end of the week, then close out by the end of March.

Is it another Pyrrhic victory for the GameStop mob? Probably not. IG blamed “a sustained period of exceptional demand” for the retreat, saying it needed to retrench away from less popular markets “to ensure the most efficient use of resources”.

There is no truth, an insider said, to speculation that IG’s prime brokers were requesting more capital to cover positions in response to the GameStop brouhaha. A withdrawal from cryptocurrency markets announced at the same time was coincidence, apparently, with IG hitting its risk tolerance limit following the Financial Conduct Authority last month banning the sale of crypto derivatives.

Instead, IG has been overwhelmed by what is likely to be temporary demand. Stuck-at-home punters are nudged by social media into trying their luck, while the regulars who populate IG’s community forum are furious at resources being diverted towards these newcomers. No one yet knows how many newcomers will stick around and how many of the regulars will be pushed elsewhere.

All this helps explain why, in a period of unprecedented trading, IG shares are barely changed over the past six months and down 14 per cent from their January peak. With management due to complete the $1bn acquisition of US peer Tastytrade by late summer, the price action does not represent a vote of confidence.

bryce.elder@ft.com