LONDON (Reuters) - British outsourcer Serco named Rupert Soames, a grandson of former Prime Minister Winston Churchill, as chief executive on Friday to restore profits and its reputation following high-profile government contract failures.
Serco shares have lost 40 percent since July when it, along with G4S, was shown to have charged for tagging criminals who were not being monitored, in prison or dead. The government banned awarding it any new contracts the same month.
On Friday, its shares jumped more than 10 percent, and shares in power provider Aggreko, which Soames ran for 11 years, fell 3 percent.
"Rupert is a charismatic leader of men, with good strategic insight and leadership skills," Aggreko Group Chairman Ken Hanna told Reuters in a phone interview.
"He is very politically astute, very experienced and obviously the Serco board think he is ideally placed for that role. He is very aware of the public service element of Serco and that's why they've chosen him," Hanna said.
"He has increased the market capitalisation by nearly 10 fold, put Aggreko firmly on the map as the world's leading re-power provider and has been an inspirational leader," he said.
Serco CEO Chris Hyman quit in October after the tagging scandal was compounded by related police inquiries, allegations of fraud on a prisoner-escorting contract, a review of all its government work and warnings on 2013 and 2014 profit.
Chairman Alastair Lyons said Serco consulted the government, which provides 25 percent of Serco's 5 billion pound ($8 billion) revenues, about Soames' appointment but the final decision was made by the board.
"The government is our largest customer so obviously if you do something as significant as this to the business, you don't wait for them to read about it in the press," he told Reuters.
He also said shareholder reaction had been very positive.
"I have spoken with shareholders extensively and I can say that they are uniformly positive. I've had words used to me like 'fantastic news', 'a real coup', 'great surprise', 'delighted'," Lyons said.
Soames - who has worked at Misys and was at conglomerate General Electric Company, now part of BAE Systems, for 15 years - will be paid a salary of 850,000 pounds with a performance-based bonus of as much as 1.4 million.
While analysts agree a turnaround is achievable, almost all expect more bad news before good, with Soames facing the challenges of restructuring, repairing reputational damage, handling underperforming contracts and a winning new work.
"We didn't see this coming because he's been so embedded at Aggreko, and so successful. Why would you expect him to leave a successful FTSE 100 company to take over one which is in the mire?" said Shore Capital Analyst Robin Speakman.
"But if anyone can turn around the fortunes of Serco and redirect a sprawling business in a focused manner, rebuilding its reputation, I think he's probably the man to do it."
Soames said he had always admired the services delivered by Serco which he will join on June 1, taking over from Ed Casey.
"I am aware that the company has experienced significant recent difficulties but the work that Serco does is important to the lives of millions of people and I believe that we can find a way through to a bright future," he said in a statement.
Serco, which employs over 100,000 staff in some 30 countries running services from London's light railway to air traffic control towers in the United States, said it was confident in the group's ability to realise its full potential under Soames' leadership.
"It hasn't looked sustainable because its reputation was in tatters. Enter Rupert Soames the reputational fears subside immediately. But the operational work still needs to be done and that's going to take time," said Shore Capital's Speakman.
G4S, the world's biggest security firm, chose Ashley Almanza in June to try to turn it around after disasters such as failing to fully staff the London 2012 Olympics.
Aggreko Chief Financial Officer Angus Cockburn will assume Soames' role on a interim basis while a search for a successor, internally and externally, is conducted. ($1 = 0.5998 British pounds)
(Additional reporting by Brenda Goh; Editing by Louise Ireland)