Rentokil announces Workwear and Hygiene JV with Haniel

Rentokil Initial has agreed to merge its Workwear and Hygiene divisions with Germany's Haniel & Cie Holding Co.

The joint venture will bring together Rentokil Initial's Workwear and Hygiene businesses in 10 countries principally in the Benelux and Central & Eastern Europe regions, with Haniel's businesses in 17 countries which operate under the CWS-boco brand.

The deal will be carried out by the transfer of the Rentokil businesses into CWS-Boco.

In consideration for the transfer, Rentokil Initial will receive around €520m in cash and a stake of around 18% in the joint venture, subject to working capital and other adjustments. The company will also receive an annual fixed dividend of €19m for five years.

Rentokil said its and CWS-boco’s businesses have complementary operations, products and capabilities providing the potential for future growth, as well as synergies and efficiencies.

It said the transaction is a strong fit with its capital allocation model and the cash received provides increased capacity for investment in its core Pest Control and Hygiene categories in its Growth and Emerging quadrants, with guidance for expenditure on bolt-on acquisitions in 2017 now increased to £100m.

Chief executive Andy Ransom said: "We are delighted to announce this joint venture with Haniel, a high-quality organisation with people who share our drive for value creation, respect for colleagues and passion for customer service. This is the right deal at the right time and the next step in the implementation of our Right Way plan.

"Overall, I believe there is a compelling logic in bringing our respective Workwear and Hygiene businesses together in these European markets, freeing up capital to invest in our higher-growth markets and delivering value for our shareholders.

RBC Capital Markets reiterated its 'outperform' rating on the stock and said: "Overall a very positive development, this is a management team delivering on its strategic plans and highlights its focus on capital allocation discipline.

"In our view, this transaction also brings to the table the potential to reduce dividend cover going forwards. This remains one of our keys picks in the large-cap space."

At 0840 GMT, the shares were up 7.3% to 226.80p.