G4S to buy Denmark's ISS in $8.2 billion deal

LONDON (Reuters) - British security firm G4S will buy Denmark's ISS in a 5.2 billion pounds ($8.2 billion) sale pulled off by its private equity owners after a failed IPO and against the backdrop of a slump in global takeover activity.

G4S, already the world's biggest security company, said it would pay 1.53 billion pounds -- half in cash and half in shares -- for the facilities management group. It will raise 2 billion pounds to help fund the deal through a fully underwritten rights issue and assume ISS's debt of 3.67 billion pounds.

The deal comes amid declining takeover activity across the world as economic uncertainty stifles the confidence and growth aspirations of corporate executives and as increasingly tight credit markets limit their funding options.

ISS, owned by Swedish private equity investor EQT and Goldman Sachs Capital Partners since 2007, had pulled the plug on a planned $2.8 billion IPO in March due to market turmoil.

ISS's two private equity owners had also broken off talks in January over an $8.5 billion takeover by private equity firm Apax after they disagreed on price.

EQT and Goldman bought the business for around $3.8 billion in 2005. They will end up holding around 11 percent in the combined business.

G4S said the acquisition would enable it to move into a range of support services to complement its security operation.

"We believe this acquisition will transform our business, significantly accelerate the delivery of our solutions strategy and create substantial value for shareholders," said G4S Chief Executive Nick Buckles.

ISS offers facilities management services ranging from cleaning to catering and employs more than half a million workers worldwide. Last year it reported earnings before interest, tax and amortization (EBITA) of 481 million pounds, on revenue of 8.5 billion pounds.

G4S focuses largely on security, employing over 635,000 workers in more than 125 countries. Last year, it posted EBITA of 527 million pounds on revenue of 7.4 billion.

CUSTOMER DEMAND

On a conference call with reporters, Buckles said the deal would enable the combined group to meet demand for companies that can reduce costs by offering a wide range of support services as part of a single package.

"There's a real underlying customer demand for integrated services. By putting these together we can deliver lower cost and better service over the longer term," he said.

Investec analyst Guy Hewett said the deal was a positive move for G4S.

"Strategically this makes good sense to us, as a multi-service offering maximizes the cost-saving potential to clients," Hewett said.

JP Morgan Cazenove analysts raised concerns over the size of the transaction, which would be the biggest in G4S's history.

"The deal could carry risks as a large transaction, that it could dilute G4S focus on pure security, especially in government security and emerging markets security and ISS may be unappealing to investors who turned down the IPO earlier this year," they said in a research note.

The rights issue will entitle shareholders to buy 7 shares for each 6 they already hold at a price of 122 pence per share.

Shares in G4S were down 20 percent to 225.9 pence at 1002 GMT, reflecting the dilutive impact of the rights issue.

G4S said the acquisition would provide significant growth opportunities and an estimated 100 million pounds of annual pretax cost savings by 2014.

It added that the deal would deliver double-digit post-tax growth in return on investment capital and double-digit earnings per share accretion within three years.

G4S said it expected to maintain its current BBB credit rating. It has agreed new debt facilities with Deutsche Bank, HSBC Bank and the Royal Bank of Scotland.

($1=0.633 British Pounds)

(Editing by Mike Nesbit)