Rentokil Initial PLC (LON:RTO) has been ordered by the Competition and Markets Authority (CMA) to sell several large supply contracts in order to assuage concerns over its merger with Cannon Hygiene Limited.
The decision by the regulator follows a Phase 2 investigation into the deal after the CMA raised concerns last year that FTSE 100 Rentokil’s merger with Cannon could lead to higher prices or lower quality for some customers.
READ: Rentokil's third-quarter revenue rises; CMA flags concerns about Cannon Hygiene purchase
More specifically, the CMA was concerned there could be reduced competition in the supply of washroom waste-disposal services for customers that require a single provider across the whole or a large part of the UK, as both Rentokil and Cannon were two of the three major suppliers at this level alongside PHS, the largest supplier.
In a press release, the CMA said Rentokil would need to sell all contracts with customers that have premises nationally and across multiple regions and were serviced by Cannon prior to the merger.
These would then need to be sold to another company, approved by the CMA, to recreate the “pre-existing competitive intensity” for future national contracts.
READ: Rentokil Initial weak as Competition and Markets Authority refers its acquisition of Cannon Hygiene for an in-depth investigation
The merger was originally referred for investigation by the CMA in the summer after a Phase 1 investigation found it could lead to a "substantial lessening" of competition.
In late-morning trading Friday, Rentokil shares were flat at 333.8p.
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