Bottom Line: Rentokil sets itself a task

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The Independent Online
RENTOKIL'S hostile bid for Securiguard looks at first sight like no contest. The target - battered by recession, its share price in the doldrums - faces one of the stock market's brightest stars.

But the market's reaction to the bid - sending Securiguard shares zooming past the 270p cash offer to 289p - indicates that the security and cleaning company is not likely to succumb easily.

The argument goes that Securiguard has braved the bad times and has tons of recovery potential - its shares were due a re-rating and the bid has merely hurried that along.

Against that, Rentokil's chief executive, Clive Thompson, points out that he is offering a 46 per cent premium over Securiguard's closing price the day before the bid.

If Rentokil really wants Securiguard, it will probably have to pay more - somewhere north of 300p was the price suggested by brokers yesterday - so investors should hold on to their shares for the time being.

Meanwhile, the bid turns the spotlight not just on Securiguard, but also on Rentokil's own future and status as a high-growth, highly- rated stock.

The group has achieved its much-admired 20-per-cent-a- year earnings growth through organic effort and a plethora of smallish, bolt-on acquisitions over the past decade.

Its speciality, by Mr Thompson's own admission, has been providing high-margin, value-added services with the emphasis on quality rather than price.

It is difficult to see how Securiguard fits into this strategy, its businesses being concentrated in low-margin sectors of the services industry.

Thus the bid raises the question of whether Rentokil has reached maturity in the growth stakes. It is highly cash-generative and to sustain its growth needs to find acquisitions on which to spend the cash.

This offer is Rentokil's first for a public company and its first hostile bid. It might give pause for thought as to whether the group continues to deserve its spectacular rating of 211 2 times prospective earnings of pounds 139m this year.

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