Synergy Delivery Squarely in Focus for Rentokil Initial as Transformative Terminix Deal Closes

Rentokil Initial’s proposed $6.7 billion acquisition of Terminix Global Holdings has succeeded, with shareholders on both sides of the deal recently approving the transformative tie-up. With the deal having created the world’s largest pest control business, Rentokil Initial’s focus will now shift promptly to delivering the USD 150 million in annual cost synergies promised under the deal. We’ve updated our financial estimates for Rentokil Initial to account for the transaction’s closure which proceeded on Oct. 12. Accordingly, consolidation of earnings from Terminix leads us to upgrade our 2022 group EBIT forecast by 10% to GBP 566 million. Nonetheless, the integration of Terminix’s financials has no impact on our valuation, having previously factored the deal into our fair value estimate for Rentokil Initial when it was announced in late 2021—for greater detail, please see our note “Rentokil’s Full Offer Price for Terminix Leaves Little Room for Slippage in Synergy Delivery” dated Dec. 15, 2021. Still, a time value of money adjustment leads us to raise Rentokil Initial’s fair value estimate by about 3% to GBX 550. Following recent share price weakness—inspired by the repricing of U.K. financial assets since its government announced a broad package of debt-funded tax cuts on Sept. 23, 2022—the wide-moat stock screens at an attractive 14% discount to fair value.