LONDON G4S (GFS.L), the world's largest security services firm which is fighting to restore its reputation after a series of contract scandals, has rejected a $2.5-billion offer for its cash transport business.
G4S said on Monday that the 1.55-billion pound bid from British private equity group Charterhouse Capital Partners CHCAP.UL was "highly opportunistic" and undervalued the unit, a move which garnered support among analysts and shareholders.
Swooping on a firm whose share price has been sapped by controversy, Charterhouse made the offer as G4S tries to salvage its relationship with the British government, a major client, after a series of blunders, including its failure to supply enough security guards for the 2012 London Olympics.
G4S faced new unwelcome publicity on Monday when it denied an allegation that its employees had abused inmates at a prison it ran in South Africa.
The group, which employees 620,000 people in 120 countries, cash handling was an important part of the growth strategy for a company whose services range from managing jails to protecting sports stars, such as tennis players at Wimbledon.
The cash unit, which distributes notes and coins for banks and shops using armored trucks, accounted for about 18 percent of G4S's 7.3-billion pound turnover last year.
"We think G4S was right to reject the bid, on both valuation and strategic grounds," JP Morgan analysts said.
The analysts said the offer, after taking into account the company's debt, valued the unit at 7.1 times enterprise value to earnings before interest, tax and amortization, compared to the 2013 valuation of 12.1 times for the whole group.
Shareholder Threadneedle Investments, which owns a 1.3-percent stake in G4S, said it supported the rejection, describing the offer as low for a strategically important and strongly performing part of the company.
The British government put all of its G4S contracts under review in July after it discovered that it and rival Serco (SRP.L) had charged it for tracking tags on convicts who were either dead or in prison. Last week, the chief executive of G4S's Britain and Ireland business resigned.
Panmure Gordon analyst Mike Allen said cash handling was a stable business that had not produced to its full potential in recent years because of low interest rates.
"At the moment G4S needs a business like that while they're trying to find their feet when there's so much uncertainty with the UK government," he said.
Chief Executive Ashley Almanza, who was promoted from finance chief in June, is expected to unveil a detailed plan for how the company will cut debt and focus on emerging markets next month.
Shares in G4S hit a high of 315.8 pence in late April but fell to a four-year low of 203.6 pence after its British government contracts were put under review in July. On Monday, they were trading up 0.5 percent at 259.8 pence at 1446 GMT.
($1 = 0.6186 British pounds)
(Additional reporting by Sinead Cruise; Editing by Paul Sandle, Erica Billingham and Alastair Macdonald)