Watchdog looks to weed out unfairness in the pest prevention sector after Rentokil’s takeover of Mitie’s critter control arm
- CMA concerned recent deal could lead to ‘substantial reduction’ in competition
- Rentokil has until 23 April to send ‘proposals’ to watchdog addressing concerns
- Otherwise, Rentokil faces being the subject of a full-blown CMA investigation
The Competition and Markets Authority (CMA) said the deal could lead to a ‘substantial reduction’ in competition within the sector, as well as higher prices and poorer quality for customers.
Rentokil now has to come up with ‘proposals’ to address the CMA’s concerns by 23 April or face an in-depth investigation.
Beastly: Rentokil Initial faces being subject to a full-blown investigation by the UK’s competition watchdog
Summing up its concerns, the CMA said: ‘The CMA has found that it is unlikely that other companies will expand or enter the market in a timely manner and offset the loss of competition caused by the merger.’
Rentokil, which is due to issue a trading update next week, snapped up the business from under-pressure outsourcing group Mitie last year for £40million in cash.
It is Rentokil’s second clash with the CMA this year.
In January, the FTSE 100-listed group was ordered by the watchdog to sell several large supply contracts in order to assuage concerns over its merger with Cannon Hygiene.
The decision by the regulator followed a Phase 2 investigation into the deal after the CMA raised concerns last year Rentokil’s merger with Cannon could lead to higher prices or lower quality for some customers.
In a flap: Rentokil has until 23 April to send the CMA ‘proposals’ to assuage their concerns
In February, Rentokil revealed that last year’s summer heatwave helped boost its profits to £308million amid strong demand for rat-catchers.
The pest control business saw a surge in callouts for flies, wasps and rats, helping to lift sales in the second half of 2018.
Total sales at the group rose 13.2 per cent to £2.5billion in 2018. It was a record year for takeovers too, with the firm signing 42 deals.
Rentokil’s share price is down 0.01 per cent or 0.05p to 364.85p.
This time a year ago, the price was hovering at around the 273.2p mark.
Mitie’s share price is down 0.46 per cent to 118.85p.
‘The UK’s Competition and Markets Authority seems to have found both its voice and its teeth,’ said AJ Bell investment director Russ Mould.
‘Fresh from apparently nixing the tie-up between supermarkets Asda and Sainsbury’s, launching a probe into the funerals market and tackling the way loyal customers can be penalised across a range of markets, the CMA has now weighed on pest control firm Rentokil’s acquisition of a rival business from Mitie.’
Mould added: ‘Rentokil can’t hang about if it wants to salvage the deal given it faces a more in-depth probe if it can’t address the concerns within a couple of weeks.’