Rentokil ditches City Link ‘problem child’ for just £1

Rentokil Initial today ended five turbulent years of large losses at its “problem child” parcels division City Link by selling the 44-year-old business for less than the cost of sending a package across London.

Chief executive Alan Brown insisted Rentokil had secured a good deal by selling City Link to Jon Moulton’s private-equity group, Better Capital,  for £1.

“It was the first practical opportunity to sell that we had,” he said. “Sometimes businesses have to make choices about their portfolio, deciding what to be when you grow up.

“City Link was never something we were going to be able to grow to compete outside of the UK, against giants like UPS. And we don’t want to focus on a business which can only operate in the UK.”

City Link posted losses of  £31 million in 2011 and  £26 million last year.

While other couriers profited from the boom in online shopping, it struggled. Rentokil variously blamed City Link’s losses on staff productivity, snow, and what Brown today called the “ill-considered acquisition” of parcels group Target Express, which it bought for £210 million,  in 2007.

Brown at one point even blamed City Link’s slow turnaround on “deep-seated management problems” that were “difficult to sort out because there’s not a lot of talent in this particular sector”.

He described City Link, which started in 1969 with cab drivers taking parcels to Euston, where other cabbies would then pick up the parcels for deliveries, as a “problem child” that caused him “sleepless nights.” 

Now Better Capital will invest  £40 million to complete the parcel group’s turnaround. Rentokil will write-off the same amount as a one-off charge. David Smith, the new boss of City Link that Brown bought in from rival Parcelforce in 2011, will stay on after the sale.

Shares rose nearly 7%, or 6.4p, to 103p on the news.

David Lis, head of equities at Aviva Investors said: “We welcome the disposal. The more time Rentokil’s management has to focus on  its strong and attractive core businesses, the better for shareholders.”