* To buy Rentokil's Initial Facilities unit for 250 mln stg
* CEO says purchase to raise earnings by double-digits in
* Full-year profit rises 8 pct; outlook positive
* Interserve raises 74.8 mln stg in share placement
By Richa Naidu
Feb 28 Building services and construction
company Interserve Plc is buying a maintenance business
from Rentokil Initial Plc for 250 million pounds ($417
million), in pursuit of double-digit growth in earnings next
The FTSE-250 company, whose services range from cleaning
Sainsbury's supermarkets to building shopping malls in
the Middle East, said buying Initial Facilities adds maintenance
contracts at JP Morgan, the London Underground, Debenhams and
others to its business.
The deal will add double-digit percentage growth to earnings
next year and a little less in 2014, probably mid-single digits,
Interserve Chief Executive Adrian Ringrose told Reuters.
He said there was "definitely a more optimistic outlook" for
2014, based on the uptick in Britain's construction sector at
the end of last year.
Interserve shares jumped as much as 6.3 percent after the
announcement of the deal and annual results showing an 8 percent
rise in profit last year.
It raised 74.8 million pounds on Friday through a share
placement to part fund the purchase, with the rest coming from a
new bank facility. It placed about 12.9 million shares at 580
pence per share, a 3.5 percent premium to Thursday's closing
The deal comes as Rentokil, whose services range from pest
control to catering and security, nears the end of a major
restructuring programme to focus on core businesses. It said
proceeds from the sale would be used primarily to pay down debt.
Initial Facilities provides services including cleaning,
catering, security, and mechanical and energy management.
The 8 percent rise in profit for the year to Dec. 31, 2013
was led by Interserve's maintenance unit and an early recovery
in the British property sector that offset weak international
construction in the first half of last year.
Its London-listed shares traded as high as 610.5 pence on
Friday. This was still far below the company's intrinsic value
of 1,077.2 pence, according to Thomson Reuters StarMine's model
of how much a stock should be worth when considering expected
growth rates over the next 15 years.
OPTIMISM FOR 2014
Larger rival Kier Group has also expressed more
confidence about 2014, after government data showed construction
output in Britain rose modestly in the fourth quarter of 2013,
spurred on by the highest numbers of new houses in more than
Britain's construction sector has benefited from a sharp
pick-up in the housing market - although Interserve's
construction business is focused on commercial work.
"We aren't exposed to house building - which is probably the
most positive part of the market right now - but infrastructure
and other forms of building, I think, are certainly through the
worst," Ringrose said.
Interserve's UK construction business, which accounts for
about a third of overall revenue, posted a nearly 9 percent rise
in revenue to 802.2 million pounds.
Kier said on Thursday that it was optimistic about a
recovery in the construction market after its building division
posted an 18 percent rise in first-half revenue.
However, output is still 12.2 percent below its pre-crisis
peak, a weaker state than in manufacturing or the services
Revenue from support services jumped 13 percent to 1.3
billion pounds. The unit, Interserve's largest, counts the BBC,
Ministry of Defence and HM Revenue & Customs among its clients.
Headline pretax profit rose to 81.1 million pounds in 2013,
compared with 75.3 million pounds a year earlier. Revenue rose
12 percent to 2.19 billion pounds.
Shares in the company were up 4.8 percent at 602 pence at
1430 GMT on Friday.
Interserve said JPMorgan Cazenove and Numis Securities were
joint bookrunners for the placement and advisors for the deal.