Rentokil plans City Link exit

[TrueBlueTerrier]

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Rentokil Initial has drawn up plans to either close down or spin off City Link, its underperforming parcel delivery service.


The Sussex-based group, which undertakes pest control and hotel laundry, is understood to be working towards a deadline of the end of the year to find a solution for City Link, the worst performing part of Rentokil in recent years.

The preferred solution for the £88m turnover division is understood to be a management buy-out, which could be done at close to zero cost for both the management and for Rentokil. Closing down the parcel delivery service could cost up to £100m.

Investors in Rentokil have been pushing for a solution to City Link after years of underperformance have dragged on the company’s share price and bottom line.

A recent pickup at the delivery group means the company is likely to favour spinning off the division.

“Rentokil is a very, very good business,” said one source close to the company.

“However, it has been dogged by City Link for too long. If the current management can find a solution to that problem Rentokil could be a target for a foreign buyer or private equity.”

In the company’s most recent market update in August, Alan Brown, the chief executive, said City Link should break even by the end of year — the deadline set by the company’s shareholders. “If we do make a profit in Q4 then we will be pretty confident about making money in 2013,” Mr Brown said.

Rentokil has tried to streamline City Link by paying lorry drivers per parcel delivered rather than per week worked. While the change resulted in some staff walking out, it also boosted productivity.

Analysts have long waited for a solution to the City Link problem so that Rentokil’s shares would perform better. Although the share price, 85.2p at Friday’s close, is up 36pc this year, many in the City believe the company is undervalued.

Rentokil declined to comment.


City sources suggested that, without City Link, Rentokil could itself be the target for a takeover or break-up.

[Lounge Lizard]

“However, it has been dogged by City Link for too long. If the current management can find a solution to that problem Rentokil could be a target for a foreign buyer or private equity.” Not the only parcels companty to be struggling, and probably not a big queue of potential buyers and whatever happened to the sell off of Royal Mail ?

[Caniel]

None wants to buy us until the USO goes.