- Jansen reportedly plotting takeover
- Consolidation opportunity in fragmented US market
- Turnaround potential at Terminix
Pest control and hygiene giant Rentokil Initial (RTO) topped the FTSE 100 leader board on Monday, with shares in the ‘royal rat-catcher’ scurrying 10% higher to 492.6p following weekend reports it is a bid target for private equity.
According to The Times, former BT (BT.A) CEO Philip Jansen is in secret talks with private equity groups over a plan that would see him become executive chair of the FTSE 100 company, the newspaper said without citing sources.
Noting that Jansen is close to Bain Capital, The Times said ‘it is understood’ that, if successful, Jansen and his backers would use Rentokil as a consolidation vehicle to buy other pest control companies in the US, before looking to re-list it in New York.
TERMINIX TURNAROUND
Jansen’s focus would likely centre on improving the performance of Rentokil’s 2022 acquisition of US rival Terminix.
Integration problems with the deal have been rife, and the Crawley-based firm has not been rewarded by the market for its efforts.
Shares in Rentokil are down over 20% on a one year view and this weakness has prompted activist investor Nelson Peltz’s Trian Partners to take a significant stake in the company, which is set to post first half results on 25 July.
Rentokil has been struggling to improve its performance in the key US market, which makes up the bulk of its revenue and where it is seen falling further behind American peer Rollins (ROL:NYSE).
The acquisition of Terminix for an EV (enterprise value) of £4.5 billion has so far failed to deliver the profit uplift investors were hoping for.
In October 2023, Rentokil’s shares plunged on a profit warning blamed on softer demand than expected in North America. After reporting a strong full year performance, which lifted the shares in March of this year, April’s first quarter trading update did little to encourage sentiment.
NELSON’S EASY WIN
Dan Coatsworth, investment analyst at AJ Bell, said Nelson Peltz may have failed with his quest to get a board seat at Disney (DIS:NYSE), but his efforts to make a buck from Rentokil ‘look like an easy win. His investment in the group couldn’t have been timed better, if reports prove correct that Rentokil is in the sights of private equity.
‘A share price sell-off after a big push on North America backfired left Rentokil a sitting duck. Whereas the group has historically been the one catching prey, the tables have turned with Rentokil now potentially being snatched by a private equity predator. There was no comment from the company in early trading but a 10% bump in the share price might force it to disclose any approaches.’
Coatsworth added: ‘A takeover of Rentokil would mean Peltz stands to make a sizeable return on his investment, arguably without having to run a normal activist campaign that drives change in how a business is run.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
