It seems the UK takeover avalanche continues. G4S has finally agreed to a takeover from US rival Allied Universal in a deal worth £3.8bn or 245p per share. With the takeover, G4S now joins a host of other British firms to fall in to the hands of foreign entities. The AA, William Hill, IMI Mobile and RSA Insurance have all been snapped up by overseas rivals recently as suitors take advantage of bombed-out share prices in what has been dubbed ‘pandemic plundering’.
Like most shares in British companies, G4S saw its stock price fall in March as a result of the global pandemic and economic lockdowns. But unlike many of its foreign competitors listed on stock markets abroad, the shares in the security services company did not rally strongly off its lows. This made Canadian firm Garda World to make an opportunistic takeover approach over the summer valuing G4S at £2.2bn.
Considering the current agreed price of £3.8bn and the depressed value of the Pound over the summer, it just goes to show how cheap valuations of British firms are. Allied Universal are paying close to double the value of the initial approach! So even with a 100% increase in share price, G4S still looks attractively valued to foreign buyers!
I have been making this point over last few months; UK shares are cheap as compared to their foreign peers. Stocks are being weighed down by Brexit uncertainty, while sterling’s weakness against other major currencies means foreign firms can get more bang for their buck. No wonder overseas investors are starting to take an interest in UK markets.
Chemicals giant Elementis spurned a £755million approach from US rival Mineral Technologies, internet-of-things’ firm Telit Communications rejected a £259million advance from private equity firm Dbay Advisors and estate agent Countrywide received another £103million bid from Connells.
Russ Mould, investment director at AJ Bell, said the average shares premium added by pursuers was 47 per cent for deals announced since October – underlining how overseas buyers view British shares as cheap.
‘If buyers feel they can still justify their purchase at that sort of premium, then they clearly think they are getting some kind of value, both financially and strategically,’ Mould said.
My Sale of G4S stock
As a result of the takeover agreement, I have decided to bank a profit and sell my shares today at 256p a share. This is higher than the 245p per share takeover price as the market believes Garda World might come back and spark a bidding war.
Having bought my GFS shares for 188p a share back in 2016 , and having sold a tranche of my shares at £3.35p a share in August 2017 , I am more than happy selling my shares at 256p. I think this is a decent price for this company in the present climate. Unlike the takeovers of Fidessa and Sophos where two high quality companies were bought out from my portfolio, I am not as gutted about losing G4S. While G4S had plenty potential, I found that they over promised and under delivered.
With dividends included, my total returns on my G4S stock comes to 83% or approx. 20% per annum! Not bad for a value play.
And having held these shares within an ISA, all gains are completely tax free! This is an important point considering all the Capital Gains Tax proposals being made.
Looking at the big picture the sale does reduce my annual portfolio dividend income by £45 a year. But with so many bargains on offer in the UK markets, this money can be deployed elsewhere and bring me even grater returns in the years to come!