Rentokil Initial PLC (LON:RTO) must offer proposals to address concerns raised by the Competition & Markets Authority (CMA) regarding its already completed takeover of MITIE PLC's (LON:MTO) pest control unit or face an in-depth investigation.
In a statement, the CMA said: "Having considered a wide range of evidence, it (CMA) has found there could be a substantial reduction in competition, which may lead to higher prices or reduced quality for customers.”
READ: Mitie shares fall as it sells pest control division to Rentokil for £40mln
The CMA said it has asked Rentokil to offer proposals to address these concerns by April 23 or face an investigation.
Rentokil – which is due to issue a trading update next week - acquired the business from under-pressure outsourcing group MITIE last year for £40mln in cash.
This is Rentokil’s second clash with the CMA this year. In January the FTSE 100-listed group was ordered by the competition watchdog to sell several large supply contracts in order to assuage concerns over its merger with Cannon Hygiene Limited.
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.
CMA finds voice and teeth
Russ Mould, investment director at AJ Bell said: “The UK’s Competition and Markets Authority seems to have found both its voice and its teeth.
“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.”
He 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.
“This is a second clash with the CMA for Rentokil in 2019 after it was ordered to sell large supply contracts picked up through its takeover of Cannon Hygiene.
“The apparently more interventionist trend on the part of the regulator suggests companies may have to consider their acquisition strategies carefully in the future to save wasting valuable management time and money on deals which are likely to attract the CMA’s ire.”
In afternoon trading, Rentokil shares were 0.1% lower at 364.50p.
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