Break-up, LBO candidate, trade buyer? Take your pick. Services combine Rentokil Initial looked to be on the block on Thursday after a truly shocking warning and a subsequent 25 per cent fall in its share price.
The particular problem is with City Link, the parcels business which Rentokil converted from a franchise operation just over two years ago. Note this in Thursday’s statement:
Detailed analysis undertaken since December 13 trading update has revealed trading downturn not just driven by market-related B to C volumes shortfall
Foundation for integration not solid enough to cope with degree and scale of changes being implemented; resulting negative impact on account management, service and new business generation…City Link 2008 profitability currently unclear – may not trade better than break even.
While group profits in 2008 will now be “significantly lower” than in 2007, chief executive Doug Flynn is promising to get to grips with the matter quickly.
But it is difficult to believe that the markets will give him time. As recently as November Mr Flynn was saying everything was fine, before the City Link problems first emerged before Christmas. Last August the chief executive declared that Rentokil had “passed an inflection point in terms of profits.”
Inflection point
n. A moment of dramatic change, especially in the development of a company, industry, or market.
The assumption, at the time, was that Mr Flynn was talking of improvement rather than implosion.
The stock is now roughly half the level it stood in 2005 when Sir Gerry Robinson was sent away with a flea in his ear. His stub equity takeover proposal, which would have handed him a stake worth £75m in return for his management expertise, was considered ludicrous at the time.