British pest control and hygiene firm Rentokil lines up ‘transformational’ $6.7bn deal to buy US rival Terminix

• The cash-and-stock deal values Terminix at a 47% premium to Monday close
• It is expected the deal will create the world leader in pest control and hygiene 
• Rentokil shares are now trading lower having initially rallied as much as 6% 

British pest control business Rentokil is set to buy US rival Terminix in a cash-and-stock deal worth $6.7billion (£5.1billion).

The deal, which values Terminix at $55 a share, is set to create the world leader in pest control, hygiene and wellbeing, and the leader in pest control in North America.

Analysts have praised the deal as ‘transformative’, but Rentokil Initial shares had moved 4.3 per cent lower by midmorning after initially rallying as much as 6 per cent when the market opened.

The deal is expected to significantly improve Rentokil's growth prospects amid US expansion opportunities 

The deal will see Rentokil issue 643.29 million new shares to Terminix shareholders and around $1.3billion in cash. Rentokil has set up a debt facility for up to $2.7billion with Barclays to finance the cash component of the deal and refinance Terminix's debt.

CEO Andy Ransom will maintain the helm of the enlarged group

It represents a 47 per cent premium to Terminix’s share price at Monday's close, giving the US firm’s shareholders ownership of 26 per cent of the enlarged group.

The enlarged group will serve about 4.9 million customers around the world from 790 locations and employ about 56,000 people.

Rentokil expects the deal to generate cost savings of at least $150million by the third year after completion and add to its earnings in the first year.

Rentokil's chairman Richard Solomons and chief executive Andy Ransom will hold those same roles in the combined group.

The boards of both companies backed the deal, which is expected to close in the second half of 2022.

Rentokil added that the enlarged business will have a ‘strong platform for growth’, particularly in North America, and an ‘attractive financial profile to support future growth, including through acquisitions and continued investment in innovation and technology’.

Solomon said: ‘Under Andy Ransom's leadership, our Combined Group will have a highly talented and experienced management team able to more effectively create value and enhance long-term growth.

‘We believe the combination is a compelling opportunity for all stakeholders to participate in the value creation of the Combined Group.’

 Ransom added: ‘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.

‘We will open our first innovation centre in the US and provide our industry-leading innovations and digital technologies to a far larger customer base. This is a win-win-win for colleagues, customers and shareholders.’

Despite this morning’s dip, Rentokil shares are up 16.7 per cent year-to-date to 604p.

Analysts at Peel Hunt hailed the deal as a ‘transformational acquisition’ and maintained their ‘hold’ rating at a target price of 595p.