Shares in G4S, the world's largest security group, fell almost 20% after it announced a £5.2bn ($8.2bn) takeover of Denmark's ISS.
G4S will pay ISS's private equity owners cash and shares, and will raise £2bn from existing shareholders to help fund the deal.
ISS operations range from catering to cleaning, while G4S services include running prisons and army training.
The takeover will double the size of G4S, giving it revenues of about £16bn.
G4S said the deal would create an estimated £100m of annual savings for the combined business by 2014.
Nick Buckles, G4S chief executive, said: "We believe this acquisition will transform our business, significantly accelerate the delivery of our solutions strategy and create substantial value for shareholders."
The two companies overlap in 40 countries, where there will be significant opportunities to make cost savings, he said.
ISS is owned by Swedish private equity firm EQT and Goldman Sachs Capital Partners.
The owners pulled the plug on a planned $2.8bn flotation of ISS in March because of market turmoil.
Kevin Lapwood, an analyst at Seymour Pierce, urged caution about the takeover.
"Although G4S has in the past proved effective at integrating large acquisitions, this will double the size of the group and there is bound to be some transactional risks in the short term," he said.
Analysts at JP Morgan Cazenove also raised concerns.
"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 combined revenues of the merged group will be £16bn, more than double the £7.4bn of G4S in 2010.