Daily Brief: G4S’s Stock Collapse Shows You Should Be Wary Of Takeover Bids

Daily Brief: G4S’s Stock Collapse Shows You Should Be Wary Of Takeover Bids

almost 3 years ago3 mins

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A bidding war for G4S – the world’s biggest security firm – came to an end on Monday, and its shares dropped by their most in a year. Didn’t see that coming…

What does this mean?

With a rise in the fear of terror attacks has come a rise in the global security market, and Allied Universal and GardaWorld – both private companies – are battling to run the show. So what better way to do that than by acquiring UK-listed G4S, which has been plagued by multiple crises – from lost prison contracts to alleged human rights abuses – over the last few years.

The global security service

GardaWorld saw its moment to strike when last year’s market turbulence took its toll on G4S’s share price, and it made a hostile bid to take over the business. But Allied took a more softly softly approach, wooing G4S with acquisition talks until – after months of back and forth – it finally won the face-off on Monday.

Why should I care?

For you personally: Try not to jump the gun on mergers and acquisitions.

G4S’s shares had risen 80% since the start of the stand-off, and investors might’ve been hoping Allied Universal and GardaWorld’s rivalry would keep driving the price up. But when GardaWorld refused to raise its latest bid, investors reversed course and sent its shares down 10%. So if you’re eyeing up takeover candidates’ stocks, it’s worth remembering that the process can lead to big price moves – and nothing’s a done-deal till the deal is actually done.

G4S shares listed in London
Source: FactSet, The Wall Street Journal

The bigger picture: Regulators could poop on the party too.

There’s one other big risk to the takeover process: regulators can block an acquisition if they think it might hurt consumer choice or disturb a key national industry. Case in point: Canadian convenience store chain Couche-Tard was told last month it wasn’t allowed to take over French food retailer Carrefour, after the latter’s government put its foot down and said “Mais non!”

Keep reading for our next story...

Goldman Sachs Reckons Oil Prices Will Rally

Oil image

According to a report released over the weekend, Goldman Sachs thinks the oil price is going to get a substantial top-up sooner than it previously thought.

What does this mean?

Demand for oil has finally started rebounding from last year’s pandemic-driven lows, with the dusky nectar’s price gaining more than 20% this year. But Goldman thinks that rally’s only just beginning: the firm says the oil price will rise another 20% by the third quarter of the year.

Rapid recovery

There are a couple of reasons why. First, Goldman thinks demand will be back to pre-pandemic levels by late July, with the vaccine rollout driving economic activity higher. And second, it reckons supply will keep lagging: oil producers are, after all, showing no signs of significantly ramping up production in the next two quarters.

Inventories continue to fall

Why should I care?

Zooming out: Commodities are a good way to protect against inflation.

Between the mooted economic recovery and uptick in government spending, investors are starting to feel more confident that the prices of the world’s goods and services will rise (i.e. inflation). And as the prices of goods and services increase, so will the prices of the raw materials used to produce them. That’s why commodities are seen as a good “hedge” against inflation – another thing that could, according to Goldman, drive oil’s price higher.

Zooming in: The big freeze in Texas isn’t too big a deal for oil.

The unprecedented cold snap in Texas – America’s biggest energy-producing State – has been moving the oil price lately too. The slippery elixir’s price initially rallied on worries that production would stall and supply would falter, only for that rally to sputter out after investors realized Texan refineries – which would take time to resume operations – would cause a drop in demand. Still, Goldman reckons the effect on supply and demand should balance each other out, and the impact on the global oil market should actually be pretty small.

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