The chairman of Rentokil Initial, the FTSE 100 firm that catches rats and destroys termites, says he is “delighted to welcome” a representative of Nelson Peltz’s Trian Partners on to the board.
What Richard Solomons means, one suspects, is that Rentokil’s standing is so low after a thumping profits warning a fortnight ago that it would be pointless to resist a request for a seat. Never mind that Trian’s stake is only 2.26%, and never mind that Peltz, famed for adventures at Heinz, Procter & Gamble, Unilever, Disney and more, operates at the aggressive end of the activist investing spectrum. Better to have a shareholder pest on the inside.
The standard Peltz tactic is to agitate for a shake-up, whether in the form of disposals, break-ups, relistings or simply better operational performance. All versions, conceivably, could apply at Rentokil. Its French unit that launders work garments looks an oddity in a company dominated by pest control with a smaller division that cleans offices. And a relisting in the US, to reflect the dominance of Rentokil’s stateside revenues these days, is officially kept “under review” already.
But an operational kick is the priority, as everybody can see. Rentokil in 2021 paid $6.7bn at a fat takeover premium to buy Memphis-based Terminix, market leader in US pest control business. It used the dreaded word “transformational” to describe a deal that was a departure from its usual diet of bolt-on small acquisitions. The cost savings seem to be arriving as advertised but the shocker a fortnight ago was virtual absence of growth in revenues when, only two months earlier, the company was banging on about “positive momentum” in US pest control.
Rentokil had to confess to being “overresourced in both sales and service”, thus the wide miss in profit forecasts. The shares plunged 20% on the day, the sort of move that tends to be remembered – especially if, like Trian, you were stakebuilding just before the warning. Peltz’s mood may not be improved by his terrible timing on this occasion.
In theory, the operational troubles are all fixable. It’s just that, almost three years after completion of the Terminix purchase, the business is still deep in the territory of branch closures and reorganisation. Meanwhile, its main US-listed rival, Rollins, enjoys a rising share price and “strong” demand the last time it spoke: no shortage of customers or termites there. The contrast is stark – a point Trian’s new boardroom representative, its head of research Brian Baldwin, may be making.
Andy Ransom, the Rentokil chief executive since 2013 – so architect of the misfiring Terminix deal but also of Rentokil’s previously long and impressive turnaround – will surely be looking over his shoulder.
Peltz’s other current adventure in FTSE 100-land is Unilever, where he took a board position himself in 2022. The problems there were similar ones of execution. Unilever’s chief executive at the time, Alan Jope, departed soon afterwards – an exit that, as fund manager Terry Smith observed, required one to suspend disbelief to think was not linked. Watch out.
