Securiguard prepares to give in to Rentokil

RENTOKIL delivered a knockout punch in its bid for Securiguard yesterday, increasing its offer to 345p a share and picking up 29.7 per cent of its prey in the market, writes John Murray.

Securiguard responded by asking for a meeting to discuss surrender terms with a view to agreeing the bid.

But analysts, already wary of Rentokil's interest in the security, personnel and communications company, were surprised by the revised price. It valued Securiguard at pounds 75.7m and represented 18 times the company's earnings in 1992.

The shares were trading at 185p the day before Rentokil's original offer of 270p a share was announced on 17 May. They stood at 327p at their peak in July 1990.

Mike Smith, of Robert Fleming, said: 'Rentokil are certainly making sure they get it, but questions will have to be asked about the group's rating when they are paying such a high price.' He was concerned that the acquisition would dilute earnings at the environmental services group, which has been a star performer in recent years as its earnings have consistently grown by 20 per cent a year.

Clive Thompson, Rentokil's chief executive, denied that earnings would be diluted by the purchase.

He said the company's large cash balances would earn interest of at most 6 per cent, which would net about pounds 4.5m against analysts' forecast profits of pounds 6m from Securiguard. 'I believe the effect on earnings would be at worst neutral and possibly enhancing,' he said.

There have also been fears that Rentokil, which has grown spectacularly on the back of high-margin businesses, would find it diffcult to increase the traditionally low margins in the security business.

But Mr Thompson said he believed the security market was changing and quality would replace price as the main factor. 'We intend to project the business towards the top end of the market, where we can enhance margins as we have done before in our other susidiaries.'

Securiguard shares climbed 25p to 340p on news of the increased bid. Rentokil's rose 1 2 p to 2061 2 p.