* Parvus says built 3.7 percent stake in G4S
* Will vote against deal to buy ISS at AGM
* Says other investors are also unhappy
By Victoria Howley and Sophie Sassard
LONDON, Oct 20 Parvus Asset Management, the
fifth-largest shareholder in British security firm G4S Plc
, on Thursday led hostility to the company's 5.2 billion
pound ($8.2 billion) deal to buy ISS, calling it "an untested
vision" that it would not support.
G4S said on Monday it would buy Danish support services
Parvus took ownership on Wednesday of a 3.7 percent stake in
G4S, the world's biggest security company, after swapping out of
contracts for difference, the firm's founder and portfolio
manager Edoardo Mercadante told Reuters. The fund began to build
its position on April 15, 2010.
According to Thomson Reuters data, the stake would make
Parvus the fifth-largest investor in G4S ahead of Scottish
Widows and Templeton Investment.
A spokesman for G4S confirmed that Parvus had built a stake
of at least 3.4 percent, but declined to comment further.
"The (ISS) deal does not make sense strategically,
operationally or financially and we intend to vote against it,"
said Mercadante, who said he had spoken to other investors that
were also unhappy.
"G4S has only ever done integrated services in Britain, yet
it wants to double its size with a facilities management deal
abroad. The vision is untested and too risky."
G4S is doubling its equity base in an opportunistic
acquisition of ISS that will continue its development into an
international facilities management company and away from its
security services roots.
The company had indicated previously that it would retain
its focus on small bolt-on deals in the emerging markets, where
it said it wanted to focus 50 percent of its activities by 2019.
A second top 20 G4S shareholder, speaking on condition of
anonymity, said: "The deal is to our mind an absurd deal, it is
totally unnecessary. People liked G4S for what it was, a
business which was easy to understand, a simple business with
good growth prospects (and) good profitability."
Meanwhile, the transaction attracted other hedge
Short-selling interest in G4S has spiked since the proposed
acquisition was announced on Monday, with the volume of shares
outstanding on loan rising to 2.07 percent by close of business
on Wednesday, compared with 0.93 percent on Oct. 12, figures
from Data Explorers show.
While some speculators were betting on further share price
falls, one London-based fund manager said a few hedge funds were
betting on rapid gains if the deal was pulled.
The fund manager described Parvus as "very aggressive" but
poured cold water on the prospect of a bigger scale coordinated
activism from shareholders.
"The deal is not horrible. G4S is paying a moderate price
and there are a few synergies. The companies will share the same
"It was the same when Rentokil first diversified
its business by acquiring SecurityGuard. Shareholders were
confused, they never knew which leg of the business was
profitable or not," the fund manager added.
According to Panmure analyst Michael Allen,
although the deal makes sense financially, it raises concerns
over the quality of future earnings.
"With debt levels also above average the market is likely to
ascribe a discount valuation on the shares for some time until
evidence emerges that integration is going to plan."
The company's stock fell 22 percent after the deal to buy
ISS was announced on Monday, helped by a $3.2 billion rights
issue that will dilute existing shareholders.
By 1623 GMT, the stock was ahead 3.2 percent at 223 pence.
G4S shareholders will vote on the acquisition and rights
issue at a general meeting on Nov. 2.
ISS, owned by Swedish private equity firm EQT and Goldman
Sachs Capital Partners since 2005, provides services from
cleaning to catering and employs more than half a million
G4S proposed the acquisition because it says the support
services market is increasingly demanding a one-stop shop
approach from suppliers that are able to offer a large bundle of
services under one contract.