Rentokil brings in ex-ICI team to turn business around as CEO departs
Troubled support services conglomerate Rentokil Initial PLC, which has issued two profit warnings in recent months, has hired the executive team that turned around the fortunes of chemicals giant ICI and confirmed the departures of chief executive Doug Flynn and chairman Brian McGowan. Speaking to reporters, acting chairman and senior independent director Peter Long denied the move was a precursor to the pest control to tropical plants business being broken up and sold.
He insisted the group's new management team are "committed for the long term".
"We're not interested in talking to 'bottom feeders' who think they can come in and buy some of the Rentokil assets on the cheap. We believe that value can be created for our shareholders by improving performance," he said. "These guys come from the old school where you create value by building underlying earnings," Long added.
Market rumours of private equity interest in parts of the business have abounded this week. "It wouldn't be appropriate to start commenting on people," Long said. "Have we had formal approaches for lots of parts of our business? No, we haven't. Have people been looking at (parts)? I'm sure they have." John McAdam, until recently the chief executive of ICI, joins as non-executive chairman while Alan Brown, who was ICI's chief financial officer, will be chief executive.
In addition, Andy Ransom, who was head of ICI's mergers and acquisitions team, will become senior executive, corporate development.
Brown has been appointed with a basic salary of 775,000 stg per annum, with Ransom set to earn a basic 450,000 mln stg. McAdam will be paid a basic 350,000 stg.
To underline the long-term nature of the appointments, the three will participate in a five-year share incentive plan. Each will be be awarded 7.5 mln shares. There will be a 20 pct vesting if and when Rentokil shares hit 120 pence, with 100 pct vesting if and when they get to 180 pence. A further award of up to 50 pct of shares can then be earned on a straight-line basis up to 280 pence.
Up to a third of the award will vest following the end of the third year, going up to two thirds at the end of year four, with full vesting possible at the end of year five.
"The way this scheme has been shaped is to encourage the team to build long-term value. That's what their credentials are," said Long.
Long also said shareholders have supported the move.
"I sounded out the shareholders and said: look, if we're going to make a big, bold move, are you going to give me the flexibility that I can come up with an incentive plan that's appropriate and they said yes," he said. Long indicated the idea to recruit all three ex-ICI executives arose out of his first meeting with John McAdam to discuss the vacant chairman position. McAdam was appointed chief executive of ICI in 2003 and saw the group's market value grow by over 600 pct under his stewardship. He was credited with turning around the group's fortunes through a programme of operational improvements aligned with portfolio and financial restructuring. ICI was sold to Dutch chemicals group Akzo Nobel NV for 8 bln stg last year.
Meanwhile, outgoing chief executive Flynn is set for a million pound-plus payoff. He is likely to get around 1.2 mln stg in compensation, according to the terms of his contract, through a mixture of base salary, pensions and benefits.
McGowan was due to step down as chairman at the annual meeting in May and will not be paid any compensation for loss of office. At 10.30 am, shares in Rentokil were trading at 88.3 pence, up over 20 pct on the day, having more than halved in value since it issued a profit warning in mid-December.
The group issued a further warning in February this year, saying 2008 profits would be significantly lower than 2007 after a weak performance in its City Link parcels business. Evolution Securities analyst Hector Forsyth described the new team as joining "fresh from a remarkable period of shareholder value creation".
"They come as a no-nonsense team that has the experience and quality to get to grips with the Rentokil portfolio and build shareholder value both through operational actions and reshaping of the mix. There is now good cause for Rentokil optimists," he said.
