Rentokil Jettisons City Link in Sale to Better Capital

Rentokil Initial Plc (RTO) rose the most in more than two years after disposing of its unprofitable City Link express delivery business in a transaction that cost the pest-control provider 40 million pounds ($62.1 million).

Rentokil gained as much as 8.6 percent to 105 pence, the highest intraday price since Feb. 10, 2011, and traded up 5.1 percent at 9:05 a.m. in London. Volume in the first hour of trading was more than half of the three-month daily average as Rentokil had the second-biggest advance on the FTSE 350 Index.

Better Capital (BCAP) investment fund paid a token 1 pound to take over City Link immediately, and will invest 40 million pounds to help complete a reorganization, West Sussex, England-based Rentokil said in a statement today. Rentokil will book 30 million pounds in charges from write-offs and additional cash costs of 10 million pounds in the second quarter, it said.

The City Link transaction is a “decent outcome,” given the unit’s losses, analysts at Barclays Plc said in a report. City Link’s operating loss last year narrowed to 26 million pounds from 31 million pounds, Rentokil said today.

“City Link has now turned the corner after five years of substantial losses,” Rentokil Chief Executive Officer Alan Brown said in a statement. The parent company “has decided to divest of City Link at this stage of the turnaround so that we can concentrate on our core international businesses.”

Brown, a former chief financial officer of Imperial Chemical Industries, is exiting partway through a reorganization of City Link, a business he assumed leadership control of in 2010 because of inefficiencies and a faltering program to restore it to profit. David Smith, a former Royal Mail executive installed by Brown to run the courier, will remain with City Link, Rentokil said.

The removal of the parcel-delivery business came as the company, which spans pest control, washroom cleaning and uniform supplies, had “slightly disappointing” organic growth in the first quarter, according to the Barclays analysts.

Revenue advanced 3.3 percent to 644.8 million pounds, with adjusted operating profit adding almost 13 percent to 37 million pounds, Rentokil said today in a separate statement.

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