Break-up plan to beat Rentokil

BET, the office cleaning to Initial towels conglomerate, is expected to fight Rentokil's surprise pounds 1.8bn hostile bid with a wide-ranging break- up plan.

The City expects BET to sell off its low-margin cleaning, recruitment and catering businesses, which take in one-third of its pounds 1.76bn of sales last year and the great majority of its 100,000 employees.

A special pay-out to shareholders may also be on the cards as chief executive John Clark weighs options to keep them loyal.

"He has to do something. Everything's possible and BET has been moving to push margins upwards," one City source said.

Rentokil has already hinted that it will sell BET's plant-hire, conference and resort-management arms. But brokers expect a much larger sell-off, owing to far fewer overlaps than Rentokil claims, while withering cynicism threatens to de-rate its shares.

The bid, which promises to be as acrimonious as Granada's swoop on Forte, has already sparked controversy. Both the Stock Exchange and the Takeover Panel are probing suspected insider dealing via Swiss accounts after a massive leak saw BET shares soar 48 hours before the bid was tabled.

Under Panel pressure, Rentokil announced plans to talk to BET on Thursday, but went hostile with personal attacks on Mr Clark in a train of events one analyst called "bizarre".

The offer is worth 179.5p in straight cash or 190p in cash and shares, 30-37 per cent above BET's price before bid rumours started. But analysts say up to 20p more is needed for victory.

"We don't think the bid recognises the value of the company," Mr Clark said. "We were willing to talk to them, but they didn't wait."

In a fierce rejection this weekend, he added: "I'm trying to see the synergies, but I'm having a hard time finding them."

Rentokil chief executive Clive Thompson has long been a stock-market darling, promising and delivering 20 per cent-plus annual profits and earnings growth since 1983.

The company was formed as British Ratin in 1927, selling rat poison, and has grown hectically in the past 10 years, snapping up businesses from cleaning to potted plants around the world.

BET meanwhile nearly went bust before Mr Clark arrived in 1991 after a spending spree left it saddled with pounds 600m of debt as recession struck. He has since slashed debt, sold laggards and saw profits rise to pounds 122m last year, against a pounds 450m loss in 1992. BET's shares have lagged the market, however, while Rentokil, now worth pounds 3.3bn, has shone. White knights are also thin on the ground and one possible candidate, Canada's Laidlaw, ruled itself out this weekend.

For those reasons, analysts expect Rentokil to win, but at a price. The shares fell 34p to 333p last week and the City is poised to remove their premium rating on cynicism about "a deal too far". It certainly dwarfs Rentokil's biggest so far, the pounds 76m purchase of Securigard in 1993, and there are fears that it may stretch management.

Analysts are also sceptical about the 71 per cent overlap claimed by Rentokil. BET's distribution arm, for example, which runs huge tanker operations in the UK, United States and Africa, is far removed from Rentokil's A-Z Couriers letters and parcels business.

"It stretches credibility to say there are overlaps in distribution," said NatWest Markets analyst Paul Morland.

Mr Thompson admitted on Friday that this was a "grey area" but rejected any need to do a deal for a deal's sake.

"We have never been against large acquisitions. It was simply the availability of opportunities," he said. "BET's size in relation to us was very different over the last couple of years from what it is now."