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Boardroom spring clean at Rentokil

Created:
20 March 2008
Updated:
29 March 2008
Written by:
Jonathan Eley

The market was never convinced that Doug Flynn, who used to head media group Aegis , was the man to fix the problems at Rentokil Initial . The shares went nowhere during the three years he ran the company. The City clearly has more faith in John McAdam, the man who will replace him as chief executive in May - as evidenced by the 25 per cent jump in the support services group's share price today on news of his appointment.

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It's not hard to see why. ICI was an utter shambles when Mr McAdam took the helm in 2003. Its share price had underperformed the All-share for the best part of four decades. It was burdened with debt following the bungled and overpriced acquisition of Unilever's speciality chemicals division. Perhaps the only positive aspect of that deal was that it brought Mr McAdam on board (he was previously at Unilever).

True, ICI had already got the embarrassment of a deeply-discounted rights issue out of the way by the time Mr McAdam became chief executive. But he still had a big debt pile to deal with, and did so by selling off various under-performing or ill-fitting businesses, before finally selling the remainder of the company to Dutch group Akzo Nobel just before the global economic outlook took a turn for the worse. By the time he'd finished, the shares were worth seven times what they were when he started.

Can he repeat the trick at Rentokil? It's not going to be a quick fix, more a long slog. As our No Free Lunch columnist has pointed out, Rentokil is a company with some serious failings. The new team is already playing down the idea of a quick break-up - and quite right, too. If Rentokil is to be broken up, it should be from a position of strength, rather than as a fire sale of damaged goods.

The ICI/Akzo Nobel deal probably left John McAdam, Alan Brown and Andy Ransom well-off enough not to need to work again. If they can effect a similar transformation at Rentokil, they certainly will be - the remuneration arrangements envisage an immediate award of shares plus further awards based on share price performance. However, Rentokil investors are unlikely to mind if they can stop the malaise that set in towards the end of Clive 'Mr Twenty Per Cent' Thompson's reign.

IC VIEW:

HighEnough

Today's jump in the share price merely reverses the drop a few weeks back, which itself followed Rentokil's latest profit warning. We advised selling the shares at 109p back in January because of the operational mess the company had got itself into. The appointment of a new management team has restored some faith that the group will recover; fixing the issues on the ground will take longer. At 89p, the shares are fairly priced.

Last IC view: High enough, 83p, 3 March 2008

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