14th Dec 2021 11:13
(Alliance News) - Rentokil Initial PLC shares initially hit a record high on Tuesday before tumbling as traders digested its USD6.7 billion deal to buy Terminix Global Holdings Inc.
Rentokil opened higher in the wake of the news on Tuesday, adding 6.0% to hit a record high of 662.00 pence. However, the stock has since dropped markedly and was trading 5.2% lower at 591.80p each. It has a market value of GBP11.0 billion.
Implying a value of USD55.00 per Terminix share, the deal represents a 47% premium to the Memphis-based firm's closing price on Monday.
Aside from the chunky premium, it could also be the description of the deal as "transformational" which hit Rentokil's stock, AJ Bell analyst Russ Mould commented.
"The use of the word 'transformational' to describe the deal by Rentokil boss Andy Ransom may also be giving some investors pause for thought. It's not hard to see the strategic rationale behind the move but so-called transformational deals often transform the purchaser's prospects for the worse rather than the better," Mould explained.
"The company is paying a fairly chunky premium, though a significant component is accounted for by its own shares. Those shares are worth a lot more after a strong run during the pandemic when Rentokil's hygiene and cleaning expertise has been in strong demand."
Rentokil will issue Terminix shareholders 643.3 million new shares and pay USD1.3 billion in cash. Terminix investors will own 26% of the combined firm.
"These are two highly complementary businesses with a similar operational playbook focused on supporting great people to provide outstanding customer service across Pest Control and Hygiene & Wellbeing. The combination will deliver further investment and the sharing of best practices to enable our talented teams to better serve customers, protecting them from the growing threat of pests and meeting their future needs," Rentokil Chief Executive Ransom said.
He described the deal as "win-win-win" for "colleagues, customers and shareholders".
The deal served as a reminder that London-listed companies could be "predators as well as prey", AJ Bell's Mould said.
"Pest control and cleaning services firm Rentokil has delivered a stunning reminder with its multi-billion-pound takeover of US rival Terminix," Mould added.
So far this year, the likes of grocer Wm Morrison Supermarkets, roadside assistance firm AA and investor John Laing Group are among those to exit the London Stock Exchange due to private buyouts.
By Eric Cunha; [email protected]
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