Filed by Rentokil Initial plc

Pursuant to Rule 425 under the Securities Act of 1933

And deemed filed pursuant to Rule 14a-12

Under the Securities Exchange Act of 1934

Subject Company: Terminix Global Holdings, Inc.

Commission File No.: 001-36507

Date: September 7, 2022

 

The following Circular to Shareholders, Notice of General Meeting and Prospectus was published by Rentokil Initial plc on September 7, 2022:

 

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT AS TO WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO SEEK YOUR OWN PERSONAL FINANCIAL ADVICE IMMEDIATELY FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000, OR FROM ANOTHER APPROPRIATELY AUTHORISED INDEPENDENT FINANCIAL ADVISER.

 

This document comprises (i) a circular relating to Rentokil Initial plc (“Rentokil Initial plc” or the “Company” and, together with its consolidated subsidiaries from time to time, “Rentokil Initial”) prepared in accordance with the Listing Rules of the Financial Conduct Authority (the “FCA”) made under section 73A of the Financial Services and Markets Act 2000, as amended (“FSMA”) for the purposes of the Rentokil Initial General Meeting convened pursuant to Part XVI (Notice of General Meeting) of this document; and (ii) a prospectus relating to Rentokil Initial plc prepared in accordance with the Prospectus Regulation Rules of the FCA made under section 73A of FSMA. This document has been approved by the FCA in accordance with section 87A of FSMA and has been filed with the FCA in accordance with the Prospectus Regulation Rules. This document together with the documents incorporated into it by reference (as set out in Part XIV (Documentation Incorporated by Reference) of this document) will be made available to the public in accordance with Prospectus Regulation Rule 3.2.1 by the same being made available, free of charge, at http://www.rentokil-initial.com and at the Company’s registered office at Compass House, Manor Royal, Crawley, West Sussex, RH10 9PY, UK.

 

This prospectus has been approved by the FCA, as competent authority under Regulation (EU) 2017/1129 of the European Parliament and Council of 14 June 2017 (as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018), as amended (the “Prospectus Regulation”). The FCA only approves this prospectus as meeting the standards of completeness, comprehensibility and consistency imposed by the Prospectus Regulation. Such approval should not be considered as an endorsement of the issuer that is the subject of this prospectus or an endorsement of the quality of the securities that are the subject of this prospectus. Investors should make their own assessment as to the suitability of investing in the securities. The document has been drawn up as part of a simplified prospectus in accordance with Article 14 of the Prospectus Regulation.

 

The Company and its directors, whose names and principal functions appear on page 43 of this document (the “Directors”), accept responsibility for the information contained in this document. To the best of the knowledge of the Company and the Directors, the information contained in this document is in accordance with the facts and this document makes no omission likely to affect its import.

 

If you have sold or otherwise transferred all of your Rentokil Initial Shares, please send this document and the accompanying documents (other than documents or forms personalised to you) at once to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected, for delivery to the purchaser or transferee. HOWEVER, these documents must not be forwarded, distributed or transmitted in, into or from any jurisdiction where to do so would violate the laws of that jurisdiction. If you have sold or otherwise transferred only part of your holding of Rentokil Initial Shares you should retain these documents and contact the bank, stockbroker or other agent through whom the sale or transfer was effected.

 

This document (including any documents incorporated into it by reference) should be read as a whole and in conjunction with the accompanying Form of Proxy. In particular, you should take account of Part I (Risk Factors) of this document for a discussion of the risks that might affect the value of your shareholding in Rentokil Initial plc. You should not rely solely on information summarised in the summary.

 

The distribution of this document and/or the accompanying documents (in whole or in part) in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

 

 

 

 

RENTOKIL INITIAL PLC

(registered in England and Wales under the Companies Act 1985 with registered number 05393279)

 

Acquisition of Terminix Global Holdings, Inc.

by RENTOKIL INITIAL PLC

 

Circular to Shareholders

Notice of General Meeting

and

Prospectus

 

 

Your attention is drawn to the letter from the Chairman of Rentokil Initial in Part VI (Letter from the Chairman of Rentokil Initial) of this document, which contains the unanimous recommendation of the Board that you vote in favour of the Resolutions to be proposed at the Rentokil Initial General Meeting. You should read the whole of this document and, in particular, the risk factors in Part I (Risk Factors) of this document.

 

The Notice of General Meeting, which will be held at the offices of Freshfields Bruckhaus Deringer LLP at 100 Bishopsgate, London, EC2P 2SR, UK at 1.30 p.m. on 6 October 2022, is set out in Part XVI (Notice of General Meeting) of this document.

 

 

 

 

The action to be taken by Rentokil Initial Shareholders in relation to the Rentokil Initial General Meeting is set out on pages 38-40 of this document. Rentokil Initial Shareholders will find enclosed with this document a Form of Proxy for use in connection with the Rentokil Initial General Meeting. Rentokil Initial Shareholders are invited to attend the Rentokil Initial General Meeting in person. In light of the potential for government restrictions in relation to COVID-19 to change at short notice, Rentokil Initial Shareholders are strongly encouraged to consider submitting the Form of Proxy online or by post and to appoint the Chair of the Rentokil Initial General Meeting as their proxy to ensure their vote is counted even if attendance at the meeting is restricted or the shareholder is unable to attend. Please complete and submit the enclosed Form of Proxy (or appoint a proxy electronically, as referred to below) in accordance with the instructions printed on it and return it to Rentokil Initial plc’s registrars, Equiniti Limited at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom no later than 1.30 p.m. on 4 October 2022. Unless the Form of Proxy is returned by the time mentioned in the instructions printed on it, it will be invalid.

 

Electronic Proxy Appointment (“EPA”) is available for the Rentokil Initial General Meeting. To use this facility, you must visit http://www.sharevote.co.uk and follow the instructions provided, or, if you have an account with Equiniti, you must visit https://www.shareview.co.uk and log on to your portfolio using your usual user ID and password. Once logged in, click “View” on the “My Investments” page, click on the link to vote and then follow the on-screen instructions. The Voting ID, Task ID & Shareholder Reference Number shown on the Form of Proxy will be required to complete the EPA procedure. EPA will not be valid if received later than 48 hours before the Rentokil Initial General Meeting, or, in the case of any adjournment, later than 48 hours before the time fixed for the adjourned meeting and will not be accepted if found to contain a computer virus. Alternatively, if you are a user of the CREST system, you may appoint a proxy by following the procedures described in the CREST Manual available at http://www.euroclear.com. The CREST message must be received by the issuer’s agent RA19 by 1.30 p.m. on 4 October 2022.

 

Applications will be made to the FCA for the New Rentokil Initial Shares to be admitted to listing on the premium listing segment of the Official List of the FCA and to the London Stock Exchange for the New Rentokil Initial Shares to be admitted to trading on the London Stock Exchange’s main market for listed securities.

 

If you have any questions about this document or the Rentokil Initial General Meeting, or are in any doubt as to how to complete the Form of Proxy, please contact Rentokil Initial plc’s registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or call on 0333 207 6581 or, if telephoning from outside the UK, on +44 (0)121 415 0077, between 8:30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays). Calls to the helpline from outside the UK will be charged at applicable international rates. Calls may be recorded and monitored for security and training purposes. Please note that, for legal reasons, the helpline cannot provide advice on the merits of the Transaction or give any legal, tax or financial advice.

 

Certain terms used in this document are defined in Part XV (Definitions) of this document.

 

Important Notice

 

Barclays, which is authorised by the Prudential Regulation Authority (the “PRA”) and regulated by the FCA and the PRA in the United Kingdom, together with Goldman Sachs, which is authorised by the PRA and regulated by the FCA and the PRA in the United Kingdom, are each acting exclusively for Rentokil Initial plc and no one else in connection with the Transaction and the matters referred to in this document and will not regard any other person as a client in relation to the Transaction and the matters referred to in this document and will not be responsible to anyone other than Rentokil Initial plc for providing the protections afforded to their respective clients, nor for providing advice in relation to the Transaction or any other matter referred to in this document. Apart from the responsibilities and liabilities, if any, which may be imposed on each of Barclays and Goldman Sachs by FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, neither Barclays nor Goldman Sachs, nor any of their respective subsidiaries, holding companies, branches nor affiliates nor any of their respective directors, officers, employees, agents or advisers owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Barclays or Goldman Sachs in connection with the Transaction for, and no representation, express or implied, is made by either of them, or purported to be made on their behalf, as to the contents of this document, including its accuracy, completeness or verification or any other statement made or purported to be made by either of them, or on their behalf, in connection with Rentokil Initial plc, the Combined Group, the Transaction or the matters described in this document. To the fullest extent permitted by applicable law, each of Barclays and Goldman Sachs and each of their respective subsidiaries, holding companies, branches and affiliates and their respective directors, officers, employees, agents and advisers accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any statement contained therein.

 

1 

 

 

Important Additional Information

 

In connection with the Transaction, Rentokil Initial plc filed with the US Securities and Exchange Commission (the “SEC”) a registration statement on Form F-4 (the “Registration Statement”), which includes a proxy statement of Terminix that also constitutes a prospectus of Rentokil Initial plc (the “proxy statement/ prospectus”). Each of Rentokil Initial plc and Terminix will also file other relevant documents in connection with the Transaction. The definitive proxy statement/prospectus will be sent to the shareholders of Terminix. This communication is not a substitute for any registration statement, proxy statement/prospectus or other documents Rentokil Initial plc and/or Terminix may file with the SEC in connection with the Transaction. BEFORE MAKING ANY VOTING OR INVESTMENT DECISIONS, INVESTORS AND STOCKHOLDERS OF TERMINIX ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE PROXY STATEMENT/PROSPECTUS, AND ANY OTHER RELEVANT DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, IN CONNECTION WITH THE TRANSACTION WHEN THEY BECOME AVAILABLE, AS THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT TERMINIX, RENTOKIL INITIAL PLC, THE TRANSACTION AND RELATED MATTERS. The registration statement and proxy statement/prospectus and other documents filed by Rentokil Initial plc and Terminix with the SEC, when filed, will be available free of charge at the SEC’s website at https://www.sec.gov. In addition, investors and shareholders will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by Terminix online at https://investors.terminix.com, upon written request delivered to Terminix at 150 Peabody Pl., Memphis, TN 38103, USA, Attention: Corporate Secretary, or by calling Terminix’s Corporate Secretary’s Office by telephone at +1 901-597-1400 or by email at deidre.richardson@terminix.com, and will be able to obtain free copies of the registration statement, proxy statement/prospectus and other documents which will be filed with the SEC by Rentokil Initial plc online at https://www.rentokil-initial.com, upon written request delivered to Rentokil Initial plc at Compass House, Manor Royal, Crawley, West Sussex, RH10 9PY, UK, Attention: Catherine Stead, or by calling Rentokil Initial plc by telephone at +44 (0)1293 858000 or by email at secretariat@rentokil-initial.com. The information included on, or accessible through, Rentokil Initial plc’s or Terminix’s website is not incorporated by reference into this communication.

 

Notice to US shareholders

 

This communication is for informational purposes only and is not intended to, and shall not, constitute an offer to sell or buy or the solicitation of an offer to sell or buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the US Securities Act of 1933, as amended.

 

Participants in the Solicitation

 

Under SEC rules, Rentokil Initial plc, Terminix and certain of their respective directors, executive officers and other members of the management and employees may be deemed to be participants in the solicitation of proxies from Terminix Shareholders in connection with the Transaction. Information about Rentokil Initial plc’s directors and executive officers may be found on its website at https://www.rentokil-initial.comand in its 2021 Annual Report filed with applicable securities regulators in the United Kingdom on 30 March 2022, available on its website at https://www.rentokil-initial.com. Information about Terminix’s directors and executive officers may be found on its website at https://corporate.terminix.com/responsibility/corporate-governanceand in its 2021 Annual Report on Form 10-K filed with the SEC on 1 March 2022, available at https://investors.terminix.com and https://www.sec.gov. The information included on, or accessible through, Rentokil Initial plc’s or Terminix’s website is not incorporated by reference herein. These documents can be obtained free of charge from the sources indicated above. Additional information regarding the interests of such potential participants in the solicitation of proxies from Terminix Shareholders in connection with the Transaction will be included in the proxy statement/prospectus and other relevant materials filed with the SEC.

 

The date of publication of this document is 7 September 2022.

 

2 

 

 

TABLE OF CONTENTS

 

SUMMARY 4
   
PART I RISK FACTORS 11
   
PART II IMPORTANT NOTICES 32
   
PART III TO VOTE ON THE TRANSACTION AND ACTION TO BE TAKEN 37
   
PART IV EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND INDICATIVE TRANSACTION STATISTICS 39
   
INDICATIVE TRANSACTION STATISTICS 40
   
PART V DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS 41
   
PART VI LETTER FROM THE CHAIRMAN OF RENTOKIL INITIAL 42
   
PART VII INFORMATION ON RENTOKIL INITIAL 56
   
PART VIII INFORMATION ON TERMINIX 59
   
PART IX SUMMARY OF THE KEY TRANSACTION TERMS 61
   
PART X CAPITALISATION AND INDEBTEDNESS OF RENTOKIL INITIAL 66
   
PART XI HISTORICAL FINANCIAL INFORMATION ON TERMINIX 68
   
PART XII UNAUDITED PRO FORMA FINANCIAL INFORMATION FOR THE COMBINED GROUP 134
   
PART XIII ADDITIONAL INFORMATION 154
   
PART XIV DOCUMENTATION INCORPORATED BY REFERENCE 183
   
PART XV DEFINITIONS 184
   
PART XVI NOTICE OF GENERAL MEETING 191
   
APPENDIX 1 TERMINIX PROFIT FORECAST 196

 

3 

 

 

SUMMARY

 

Summaries are made up of disclosure requirements known as “Elements”. These Elements are numbered in Sections A-D (A.1—D.2). This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

 

Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of “not applicable”.

 

SECTION A—INTRODUCTION AND WARNINGS
A.1 Name and international securities identifier number (ISIN) of the securities

The ordinary shares of one pence each in the capital of Rentokil Initial plc (“Rentokil Initial plc” or the “Company” and, together with its consolidated subsidiaries from time to time, “Rentokil Initial”) (the “Rentokil Initial Shares”) are registered with ISIN number GB00B082RF11 and SEDOL number B082RF1, and trade under the symbol RTO.
A.2 Identity and contact details of the issuer, including its Legal Entity Identifier (LEI)

The issuer is Rentokil Initial plc. The registered office and principal place of business of Rentokil Initial plc is at Compass House, Manor Royal, Crawley, West Sussex, RH10 9PY, UK. Rentokil Initial plc’s telephone number is +44 (0)1293 858000 and its legal entity identifier (“LEI”) number is 549300VN4WV7Z6T14K68.
A.3 Identity and contact details of the competent authority approving the combined document

This document consists of a circular and prospectus (“this document”) and this document has been approved by the Financial Conduct Authority (the “FCA”), as competent authority under the Prospectus Regulation, with its head office at 12 Endeavour Square, London, E20 1JN, and telephone number: +44 (0)20 7066 1000, in accordance with the Prospectus Regulation Rules.
A.4 Date of approval of the combined document

This document was approved on 7 September 2022.
A.5 Warning

This summary should be read as an introduction to this document. Any decision to invest in the New Rentokil Initial Shares (as defined below) should be based on a consideration of this document as a whole by the investor. An investor could lose all or part of their invested capital. Civil liability attaches only to those persons who have tabled the summary, including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document, or if it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in the New Rentokil Initial Shares.
SECTION B—KEY INFORMATION ON THE ISSUER
B.1 Who is the issuer of the securities?
B.1.1 Domicile, legal form, LEI, jurisdiction of incorporation and country of operation

Rentokil Initial plc was incorporated and registered in England and Wales on 15 March 2005 under the Companies Act 1985 as a public company limited by shares with the registered number 05393279, with the name Rentokil Initial 2005 plc. Rentokil Initial plc changed its name from Rentokil Initial 2005 plc to Rentokil Initial plc on 21 June 2005. Rentokil Initial plc’s LEI number is 549300VN4WV7Z6T14K68.
B.1.2 Principal activities

Rentokil Initial is a global leader in the provision of route-based services which protect people and enhance lives. Rentokil Initial operates three business segments: Pest Control, Hygiene & Wellbeing and Workwear (France). Rentokil Initial has a global reach, with approximately 46,000 colleagues and operations in 88 countries and in more than 90 of the world’s 100 largest cities. Rentokil Initial leads in digital and innovation, compounding revenue, profit and cash growth through a combination of organic growth and M&A.

Terminix Global Holdings, Inc. (“Terminix Holdings” and, together with its consolidated subsidiaries from time to time, “Terminix”) is a leading provider of residential and commercial pest control services with a focus on North America, specialising in protection against termite damage, rodents, insects and other pests.

 

4 

 

 

SECTION B—KEY INFORMATION ON THE ISSUER
  Rentokil Initial plc and Terminix Holdings announced on 14 December 2021 an agreement for the acquisition, by a subsidiary of Rentokil Initial plc, of the entire common stock of Terminix Holdings (the “Terminix Shares”), which will be effected through a statutory merger pursuant to the laws of Delaware (the “Transaction”). On completion of the Transaction (“Completion”), Rentokil Initial and Terminix will combine (the “Combined Group”).

The Transaction will combine two leading pest control businesses with a long cultural heritage, outstanding talent and strong focus on people, customers, delivering products and services responsibly, and benefiting society and the environment by acting in a responsible manner. The Combined Group will enhance shareholder value by creating an enlarged platform for growth, particularly in North America. It will have an attractive financial profile with the opportunity to increase net operating margins through cost reductions and operational efficiencies and a strong balance sheet to support growth through continued investments. The Combined Group will become the leading global pest control company, with a customer base of approximately 4.9 million customers, approximately 57,700 colleagues globally and presence in 790 locations in over 88 countries.
B.1.3 Major shareholders

Insofar as it is known to Rentokil Initial plc, the following persons are, or will at Admission (as defined below) be, interested directly or indirectly in three per cent. or more of the voting rights in respect of the issued share capital of Rentokil Initial plc based on the assumption that the holdings of such persons in Rentokil Initial plc as at the Latest Practicable Date do not change, 645,386,010 Rentokil Initial Shares are issued in connection with the Transaction and that no other issues of Rentokil Initial Shares occur between the date of this document and Admission:
   

     As at the Latest Practicable Date   Immediately following Admission 
     Number of   Percentage of   Number of   Percentage of 
      Rentokil Initial    issued Rentokil    Rentokil Initial    issued Rentokil 
  Name   Shares(1)    Initial Shares    Shares    Initial Shares 
  Ameriprise Financial, Inc.   182,682,307    9.80    182,682,307    7.28 
  T Rowe Price International Ltd   91,554,981    4.91    126,257,931    5.03 
  Citigroup Global Markets Limited   96,593,770    5.18    123,010,173    4.90 
  BlackRock, Inc.    93,128,464    5.00    119,897,333    4.78 
  FMR LLC   106,538,308    5.72    106,555,097    4.25 
  Majedie Asset Management Ltd   101,963,126    5.47    101,963,126    4.06 
  Schroders plc   89,878,920    4.82    100,189,847    3.99 
  Invesco Ltd   89,477,118    4.80    90,088,167    3.59 
  AXA SA   87,093,421    4.67    87,188,727    3.47 
  The Capital Group Companies, Inc.    82,615,045    4.43    82,615,045    3.29 

 _______________________  
 Notes: The above table is based on share notifications received up to the Latest Practicable Date pursuant to DTR 5. Since the date of disclosure to the Company, the interest of any person listed above in Rentokil Initial Shares may have increased or decreased. No requirement to notify the Company of any increase or decrease arises unless the holding passes a notifiable threshold in accordance with rules 5.1.2 or 5.1.5 of the FCA’s Disclosure Guidance and Transparency Rules. To provide a more accurate description of the Company’s substantial shareholders, the table below outlines the Company’s significant shareholders holding 3 per cent. or more of the Company’s issued share capital as at the Latest Practicable Date. Where a Rentokil Initial Shareholder is also a Terminix Shareholder as at the Latest Practicable Date, the above and below tables assume that such Rentokil Initial Shareholder elects and receives 80 per cent. stock consideration at Completion with respect to each of its Terminix Shares.
  

     As at the Latest Practicable Date   Immediately following Admission 
     Number of   Percentage of   Number of   Percentage of 
      Rentokil Initial    issued Rentokil    Rentokil Initial    issued Rentokil 
  Name   Shares    Initial Shares    Shares    Initial Shares 
  Vanguard Group (Philadelphia)   66,234,661    3.55    124,793,492    4.97 
  Columbia Threadneedle Investments (London)   118,432,249    6.35    118,432,249    4.72 
  T. Rowe Price (Baltimore)   69,069,815    3.71    103,772,765    4.14 
  Fidelity Investments (Boston)   103,643,578    5.56    103,660,367    4.13 
  BlackRock Investment Mgt—Index (San Francisco)   65,673,363    3.52    88,744,632    3.54 
  BlackRock Investment Mgt—Index (London)   66,330,955    3.56    66,340,395    2.64 
  Capital Research Global Investors (London)   62,041,612    3.33    62,041,612    2.47 
  Royal London Asset Mgt (CIS) (Manchester)   58,904,327    3.16    58,904,327    2.35 
                       

 

5 

 

 

SECTION B—KEY INFORMATION ON THE ISSUER
B.1.4 Key managing directors

Rentokil Initial plc’s Chief Executive is Andy Ransom and its Chief Financial Officer is Stuart Ingall-Tombs.
B.1.5 Identity of the statutory auditors

The statutory auditors of Rentokil Initial plc are PricewaterhouseCoopers LLP (“PwC”), whose registered address is at 1 Embankment Place, London, WC2N 6RH, United Kingdom. For the years ended 31 December 2019 and 31 December 2020, KPMG LLP (“KPMG”) were the statutory auditors of Rentokil Initial plc. KPMG’s registered address is at 15 Canada Square, London, E14 5GL, United Kingdom.
B.2 What is the key financial information regarding the issuer?

Shareholders should read the whole of this document and not rely solely on the summarised financial information set out below.

Rentokil Initial

The tables below set out Rentokil Initial’s summary financial information for the periods indicated, as prepared in accordance with IFRS.

The consolidated financial information set forth below is extracted or derived from, and should be read in conjunction with, the audited consolidated financial statements for Rentokil Initial for the years ended 31 December 2021, 31 December 2020 and 31 December 2019, and unaudited consolidated interim financial statements for Rentokil Initial for the six month periods ended 30 June 2022 and 30 June 2021, incorporated by reference into this document.

Consolidated Statement of Income of Rentokil Initial
   

     Six months
ended 30 June (£m)
   Year ended 31 December (£m) 
     2022   2021   2021   2020   2020   2019 
     (unaudited)   (unaudited)   (audited)   (unaudited, restated)   (audited)   (audited) 
  Total revenue   1,572.1    1,454.7    2,956.6    2,803.3    2,823.5    2,714.4 
  Adjusted earnings before interest, tax, depreciation amortisation and impairment and non- underlying items   326.7    309.4    654.1    616.2    616.2    596.7 
  Adjusted operating profit   232.5    208.6    441.5    384.0    384.0    365.4 
  Operating profit (loss)   169.7    160.6    346.5    293.8    293.8    265.6 
  Profit (loss) for the period   124.2    119.2    263.2    186.3    186.3    283.6 

  
 Consolidated Statement of Financial Position of Rentokil Initial
  

     As of 30 June (£m)   As of 31 December (£m) 
     2022   2021   2021   2020   2020   2019 
     (unaudited)   (unaudited)   (audited)   (unaudited, restated)   (audited)   (audited) 
  Total non-current assets   3,353.6    2,738.5    2,979.5    2,744.3    2,744.3    2,468.7 
  Total current assets   3,186.6    2,388.2    1,343.6    2,838.8    3,093.9    1,785.3 
  Total assets   6,540.2    5,126.7    4,323.1    5,583.1    5,838.2    4,254 
  Total non-current liabilities   (3,403.7)   (1,660.3)   (1,669.6)   (1,749.7)   (1,749.7)    (1,476.3) 
  Total current liabilities   (1,698.3)   (2,331.0)   (1,389.6)   (2,702.8)   (2,957.9)     (1,775.4) 
  Total liabilities   (5,102.0)   (3,991.3)   (3,059.2)   (4452.5)   (4707.6)   (3251.7)
  Net assets   1,438.2    1,135.4    1,263.9    1,130.6    1,130.6    1,002.3 
                                 

 

6 

 

 

SECTION B—KEY INFORMATION ON THE ISSUER
  Consolidated Statement of Cash Flows of Rentokil Initial
   

     Six months
ended 30 June (£m)
   Year ended 31 December (£m) 
     2022   2021   2021   2020   2020   2019 
     (unaudited)   (unaudited)   (audited)   (unaudited, restated)   (audited)   (audited) 
  Net cash flow from operating activities  261.1   331.8   563.2   523.4   544.2   462.9 
  Net cash flow from investing activities  (208.6)  (324.6)  (441.1)  (497.5)  (327.0)  (61.1)
  Net cash flow from financing activities  1,470.6   (161.0)  (417.1)  253.5   62.2   (221.3)
  Net change in cash and cash equivalents  1,523.1   (153.8)  (295.0)  279.4   279.4   180.5 
  Cash and cash equivalents at start of period  241.9   550.8   550.8   273.9   273.9   100.9 
  Exchange gain (loss) on cash and cash equivalents  22.8   (9.1)  (13.9)  (2.5)  (2.5)  (7.5)
  Cash and cash equivalents at end of period  1,787.8   387.9   241.9   550.8   550.8   273.9 

   
  Terminix

The tables below set out Terminix’s summary financial information for the periods indicated, as prepared in accordance with US GAAP.

The consolidated financial information set forth below is extracted or derived from, and should be read in conjunction with, Terminix Holdings’ Quarterly Report on Form 10-Q for the six month periods ended 30 June 2022 and 30 June 2021 and the audited consolidated financial statements for Terminix as of and for the years ended 31 December 2021, 31 December 2020 and 31 December 2019.
   

     Six months ended 30 June   Year ended 31 December 
     (US$m) (unaudited)   (US$m) (audited) 
  Terminix Consolidated Income Statement  2022   2021   2021   2020   2019 
  Revenue  1,081   1,032   2,045   1,961   1,819 
  Income from Continuing Operations before Income Taxes  39   110   180   41   64 
  Income from Continuing Operations  21   81   126   20   60 
  Net Income  21   81   125   551   128 
  Other Comprehensive (Loss), Net of Income Taxes  29   17   17   (47)  4 
  Total Comprehensive Income  50   97   142   504   132 
 

     As of 30 June   As of 31 December 
     (US$m) (unaudited)   (US$m) (audited) 
  Terminix Consolidated Balance Sheet  2022   2021   2021   2020   2019 
  Total current assets  698   730   514   1,010   629 
  Total assets  4,486   4,567   4,410   4,837   5,322 
  Total current liabilities  544   552   511   588   557 
  Total stockholders’ equity  2,436   2,508   2,375   2,741   2,322 

  

     Six months ended 30 June   Year ended 31 December 
     (US$m)   (US$m)  
  Terminix Consolidated Cash Flow Statement  2022   2021   2021   2020   2019 
     (unaudited)   (unaudited)             
  Net cash flow from operating activities  159   151   239   198   169 
  Net cash flow from investing activities  20   (56)   (131)   (47)   (519) 
  Net cash flow from financing activities  (26)   (409)   (623)   (992)   328 
  Net change in cash and cash equivalents  161   (302)   (499)   336   55 
  Cash and cash equivalents at start of period  205   704   704   368   313 
  Exchange gain (loss) on cash and cash equivalents  (4)      (1)   1   1 
  Cash and cash equivalents at end of period  366   402   205   704   368 
                       

 

7 

 

 

SECTION B—KEY INFORMATION ON THE ISSUER
  Key pro forma financial information

The Unaudited Pro Forma Financial Information has been prepared to illustrate the effect of the Transaction on: (i) the income statement of Rentokil Initial for the six months ended 30 June 2022 as if the Transaction had taken place on 1 January 2021; (ii) the income statement of Rentokil Initial for the year ended 31 December 2021 as if the Transaction had taken place on 1 January 2021; and (iii) the statement of net assets of Rentokil Initial as if the Transaction had taken place on 30 June 2022. The Unaudited Pro Forma Financial Information has been compiled on a basis consistent with IFRS and in a manner consistent with the accounting policies adopted by Rentokil Initial plc in preparing the audited consolidated financial statements for the year ended 31 December 2021. The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent Rentokil Initial’s or the Combined Group’s actual financial position or results.

Summary of Unaudited Pro Forma income statement
  
     Six months ended   Year ended 
     30 June 2022   31 December 2021 
     (£m)   (£m) 
  Total revenue  2,405   4,441 
  Operating profit  248   333 
  Profit before income tax  187   216 
  Profit attributable to the Company’s equity holders  140   152 
  
 Summary of Unaudited Pro Forma statement of net assets
  
     As at 30 June
2022
(£m)
 
  Non-current assets  9,334 
  Current assets  2,503 
  Non-current liabilities  4,918 
  Current liabilities  2,161 
  Net assets  4,758 
       

B.3 What are the key risks that are specific to the issuer?

The following is a selection of the most material risks specific to the Company and, following Completion, the Combined Group. In making the selection, Rentokil Initial plc has considered circumstances such as the possibility of the risk materialising on the basis of the current state of affairs, the potential impact that the materialisation of the risk could have on the Company’s and, following Completion, the Combined Group’s business, reputation, results of operations, financial condition and/or prospects, and the attention that management would, on the basis of current expectations, have to devote to these risks if they were to materialise.

   
The Combined Group may not realise all of the anticipated benefits of the Transaction.
   
The additional indebtedness that Rentokil Initial will incur in connection with Completion could adversely affect the Combined Group’s financial position, including by decreasing Rentokil Initial’s (and following Completion, the Combined Group’s) business flexibility and result in a decline in the Combined Group’s credit rating.
   
Prior to Completion, each of Rentokil Initial and Terminix, and following Completion the Combined Group, may have difficulty attracting, motivating and retaining executives and other employees in light of the Transaction.
   
If Rentokil Initial (and with effect from Completion, the Combined Group) is unsuccessful in integrating acquisitions (including the Transaction) or if its disposals result in lost business streams or unexpected costs or liabilities, its business could be materially and adversely affected.
   
Termite damage claims and lawsuits related thereto could increase the Combined Group’s legal expenses and may adversely impact its business, reputation, results of operations, financial condition and/or prospects.
   
Rentokil Initial (and with effect from Completion, the Combined Group) may experience difficulties integrating, streamlining and optimising its IT systems, processes and technologies.
   
Rentokil Initial depends (and with effect from Completion, the Combined Group will depend) on a suitably skilled and qualified labour force to maintain the business.
   
Rentokil Initial depends (and with effect from Completion, the Combined Group will depend) on key personnel to lead Rentokil Initial’s business.
   

 

8 

 

 

SECTION B—KEY INFORMATION ON THE ISSUER
ESG matters, including those related to climate change and sustainability, may have an adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.
   
Inflationary pressures, such as increases in wages, fuel prices and other operating costs, could adversely impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, results of operations, financial condition and/or prospects.
   
Supply chain issues may result in product shortages or disruptions to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business.
   
Compliance with, or violation of, environmental, health and safety laws and regulations, including laws pertaining to the use of pesticides, could result in significant costs that adversely impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.
   

SECTION C—KEY INFORMATION ON THE SECURITIES
C.1 What are the main features of the securities?
C.1.1 Type, class and ISIN

Following Admission (as defined below), the New Rentokil Initial Shares will be registered with ISIN number GB00B082RF11 and SEDOL number B082RF1, and trade under the symbol RTO, which is the same ISIN as the existing Rentokil Initial Shares.
C.1.2 Currency, denomination, par value, number of securities issued and duration

As at the Latest Practicable Date, the issued share capital of Rentokil Initial plc was £18,638,329.65, comprising 1,863,832,965 Rentokil Initial Shares. Rentokil Initial plc has agreed to issue up to approximately 645 million New Rentokil Initial Shares which will be represented by up to approximately 129 million Rentokil Initial American Depositary Shares being issued to Terminix Shareholders (“New Rentokil Initial ADSs”, and together with the Existing Rentokil Initial ADSs, the “Rentokil Initial ADSs”) in respect of the Transaction, such that the issued share capital of Rentokil Initial plc at Completion will be £25,092,189.75] (assuming approximately 645 million New Rentokil Initial Shares are issued), comprising 2,509,218,975 Rentokil Initial Shares. The Rentokil Initial Shares are, and the New Rentokil Initial Shares will be, denominated in pounds sterling and have an indefinite term.
C.1.3 Rights attaching to the New Rentokil Initial Shares

The New Rentokil Initial Shares will rank equally with the existing Rentokil Initial Shares in all respects, including for voting and distribution purposes. On a show of hands each holder of Rentokil Initial Shares has one vote and on a poll each holder of Rentokil Initial Shares has one vote for every Rentokil Initial Share held. The Rentokil Initial Shares carry the right to and rank equally for all dividends and other distributions declared, made or paid.
C.1.4 Rank of securities in the issuer’s capital structure in the event of insolvency

The Rentokil Initial Shares do not, and the New Rentokil Initial Shares will not, carry any rights to participate in a distribution (including on a winding-up) other than those that exist as a matter of law. The New Rentokil Initial Shares will rank equally with the existing Rentokil Initial Shares on a winding up of Rentokil Initial plc.
C.1.5 Restrictions on transfer

The Rentokil Initial Shares are, and New Rentokil Initial Shares will be, free from any restriction on transfer, subject to compliance with applicable securities laws.
C.1.6 Dividend or payout policy

The Combined Group will remain committed to Rentokil Initial plc’s current progressive dividend policy.
C.2 Where will the securities be traded?

Subject to Completion, applications will be made for Admission of all of the New Rentokil Initial Shares. On Admission, such New Rentokil Initial Shares will be admitted to trading on the main market for listed securities of the London Stock Exchange. The New Rentokil Initial Shares will be registered with ISIN number GB00B082RF11 and SEDOL number B082RF1, and trade under the symbol RTO.

 

9 

 

 

SECTION C—KEY INFORMATION ON THE SECURITIES
C.3What are the key risks that are specific to the securities?

The following are the most material risks specific to the Rentokil Initial Shares. In selecting these risks, Rentokil Initial plc has considered circumstances, such as the possibility of the risks materialising and the potential impact which the materialisation of the risk could have on holders of Rentokil Initial Shares:
Current Rentokil Initial Shareholders will have a reduced ownership and voting interest after the Transaction.
   
Resales of Rentokil Initial Shares and Rentokil Initial ADSs following Completion may cause the market value of Rentokil Initial Shares to decline.
   
The market value of Rentokil Initial Shares and Rentokil Initial ADSs may decline as a result of the Transaction.
   

SECTION D—KEY INFORMATION ON THE OFFER OF SECURITIES TO THE PUBLIC AND/OR THE ADMISSION TO TRADING ON A REGULATED MARKET
D.1 Under which conditions and timetable can I invest in this security?

Not applicable. This document does not constitute an offer or an invitation to any person to subscribe for or purchase any Rentokil Initial Shares. The New Rentokil Initial Shares being issued will be represented by the New Rentokil Initial ADSs that will be issued to Terminix Shareholders as consideration for the Transaction.

Details of admission to trading on a regulated market

Application will be made to the FCA for the New Rentokil Initial Shares to be admitted to the premium listing segment of the Official List of the FCA and to the London Stock Exchange for the New Rentokil Initial Shares to be admitted to trading on the main market for listed securities of the London Stock Exchange (“Admission”). It is expected that Admission will become effective, and that dealings in the New Rentokil Initial Shares will commence on the business day immediately following the date of Completion which is expected to be on 12 October 2022.

Amount and percentage of immediate dilution resulting from the issue

Following Completion and assuming that approximately 645 million New Rentokil Initial Shares are issued in connection with the Transaction, existing Rentokil Initial Shareholders will be subject to an immediate dilution as a result of the issue, following which they will hold approximately 74 per cent. of the Company’s issued share capital.

Estimate of the total expenses of the issue
The aggregate costs and expenses of the Transaction, issuance of the New Rentokil Initial Shares and Admission (including the listing fees of the FCA and the London Stock Exchange, professional fees and expenses and the costs of printing and distribution of documents), issuance payable by the Company are estimated to be £80 million (inclusive of VAT).
D.2 Why is the combined document being produced?
Under the terms of the Transaction, Terminix Shareholders will receive aggregate consideration comprised of approximately US$1.3 billion in cash and approximately 129 million New Rentokil Initial ADSs (each New Rentokil Initial ADS representing five Rentokil Initial Shares).

Subject to Completion, applications will be made for all of the New Rentokil Initial Shares to be admitted to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange.

This document has been prepared in connection with the proposed applications for Admission of the New Rentokil Initial Shares which will be represented by the New Rentokil Initial ADSs proposed to be issued to Terminix Shareholders in connection with the Transaction. There are no conflicting interests that are material to Admission.

 

10 

 

 

PART I

 

RISK FACTORS

 

Any investment in the Rentokil Initial Shares is subject to a number of risks. Prior to investing in the Rentokil Initial Shares, prospective investors should carefully consider risk factors associated with any investment in the Rentokil Initial Shares, the business of Rentokil Initial and, following Completion, the Combined Group and the pest control industry as a whole, together with all other information contained in this document, including in particular the risk factors described below, and consult with their professional advisers.

 

Prospective investors should note that the risks summarised in the section of this document entitled “Summary” are the risks that the Company has assessed to be the most essential to an assessment by a prospective investor of whether to consider an investment in the Rentokil Initial Shares. However, as the risks that Rentokil Initial faces and, following Completion, the Combined Group will face, relate to events and depend on circumstances that may or may not occur in the future, prospective investors should consider not only the information on the key risks summarised in the section of this Prospectus entitled “Summary Information” but also, among other things, the risks and uncertainties described below.

 

Rentokil Initial Shareholders should also consider the following risks and uncertainties together with all the other information set out in, or incorporated by reference into, this document prior to making any decision as to whether or not to vote in favour of the Transaction.

 

If any of the following risks were to occur, this could have a material adverse effect on the business, reputation, results of operations, financial condition or prospects of Rentokil Initial, Terminix or, following Completion, the Combined Group, the value of the Rentokil Initial Shares could decline and Rentokil Initial Shareholders could lose all or part of the value of their investment in Rentokil Initial Shares.

 

In addition, the risks described below are based on information known at the date of this document but may not be the only risks to which Rentokil Initial, Terminix or, following Completion, the Combined Group is or might be exposed to or that prospective investors may face when making an investment in the Rentokil Initial Shares. Additional risks and uncertainties relating to Rentokil Initial, Terminix or, following Completion, the Combined Group, which are currently unknown to Rentokil Initial plc or that Rentokil Initial plc does not currently consider to be material, could have a material adverse effect on the business, reputation, results of operations, financial condition and/or prospects of Rentokil Initial, Terminix or, following Completion, the Combined Group. If any of the following risks were to occur, the business, financial condition, results of operations and/or prospects of Rentokil Initial, Terminix or, following Completion, the Combined Group could be materially adversely affected and the value of the Rentokil Initial Shares could decline and Rentokil Initial Shareholders could lose all or part of the value of their investment in Rentokil Initial Shares.

 

Risks related to the Transaction

 

There is no assurance when or if the Transaction will be completed.

 

Completion is conditional upon a number of Conditions as set forth in the Merger Agreement, including, among others:

 

(a)Rentokil Initial Shareholder approvals:

 

(i)approval of the Resolutions by a majority of Rentokil Initial Shareholders attending, whether in person or by proxy, and voting at the Rentokil Initial General Meeting;

 

(b)Terminix Shareholder approval:

 

(i)adoption of the Merger Agreement by the holders of a majority of the outstanding Terminix Shares entitled to vote at the special meeting of Terminix Shareholders to be called for the purposes of such vote (the “Terminix Special Meeting”);

 

(c)admission of New Rentokil Initial Shares to listing on the London Stock Exchange’s main market for listed securities and New Rentokil Initial ADSs on the NYSE:

 

(i)approval for admission of the New Rentokil Initial Shares to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange subject only to the issue of such New Rentokil Initial Shares upon Completion; and

 

(ii)approval for listing on the NYSE of the New Rentokil Initial ADSs issuable to Terminix Shareholders as the share portion of the Merger Consideration (subject to official notice of issuance); and

 

11 

 

 

(d)registration statements declared effective by the SEC:

 

(i)declaration by the SEC of the effectiveness of the registration statements filed on Form F-4 and Form F-6 relating to the New Rentokil Initial Shares and New Rentokil Initial ADSs, respectively, to be issued as the share portion of the Merger Consideration (and the absence of any stop order suspending the effectiveness of such registration statements or any proceedings seeking such a stop order pending before the SEC).

 

There can be no assurance as to when these Conditions will be satisfied or waived, if at all, or that other events will not intervene to delay or result in the failure to complete the Transaction.

 

The Rentokil Initial General Meeting will take place before all of the required Conditions have been satisfied and before all matters relevant to the satisfaction of Conditions, if any, are known. Notwithstanding the foregoing, if the Transaction is approved by Rentokil Initial Shareholders, Rentokil Initial plc may not be required to seek further approval of Rentokil Initial Shareholders.

 

Because the market value of Rentokil Initial Shares may fluctuate and the exchange ratio and per share cash amount are both fixed, Rentokil Initial cannot be sure of the market value of the Merger Consideration that it will pay in the Transaction.

 

Upon Completion, Terminix Shareholders will be entitled to receive for each Terminix Share that they own, at the election of each shareholder, subject to certain allocation and proration provisions in the Merger Agreement, either (i) a number of New Rentokil Initial ADSs (each representing a beneficial interest in five New Rentokil Initial Shares) equal to (A) the exchange ratio plus (B) the quotient of the per share cash amount and the Rentokil Initial ADS price; or (ii) an amount in cash, without interest, and in USD equal to (A) the per share cash amount plus (B) the product of the exchange ratio and the Rentokil Initial ADS price. Based on Rentokil Initial plc’s five-day average daily volume weighted share price and the five-day average of the £:US$ exchange rate, in each case, over the period spanning 6 December 2021 to 10 December 2021, inclusive, the implied value of the Merger Consideration to Terminix Shareholders as at the date of announcement of the Transaction was US$55.00 per Terminix Share. Based on Rentokil Initial plc’s five-day average daily volume weighted share price and the five-day average of the £:US$ exchange rate, in each case, over the period spanning 24 August 2022 to 31 August 2022 (the latest practicable trading day before the date of this document), inclusive, the implied value of the Merger Consideration to Terminix Shareholders was approximately US$43.33 per Terminix Share.

 

The Merger Consideration will not be adjusted to reflect the comparative value of pounds sterling and the US dollar or the market value of Rentokil Initial Shares or the Terminix Shares. Therefore, the aggregate market value of the New Rentokil Initial Shares that Rentokil Initial plc is required to issue at the time of Completion could vary significantly from the value of the Rentokil Initial Shares on the date of this document or the date of the Rentokil Initial General Meeting.

 

Rentokil Initial plc or Terminix Holdings may waive one or more of the Conditions without re-soliciting shareholder approval.

 

Certain conditions to Rentokil Initial plc and Terminix Holdings’ obligations, respectively, to complete the Transaction may be waived, in whole or in part, to the extent legally permissible, either unilaterally or by agreement by either Rentokil Initial plc or Terminix Holdings. In the event that any such waiver does not require further shareholder approval or a supplement to this document or any re-solicitation of proxies or voting cards (as applicable), the parties will have the discretion to complete the Transaction without seeking further approval of Rentokil Initial Shareholders or Terminix Shareholders, as applicable.

 

Except in specified circumstances, if the Transaction is not completed by 31 December 2022, subject to certain extensions in specified circumstances by either Rentokil Initial or Terminix, either Rentokil Initial or Terminix may choose not to proceed with the Transaction.

 

Either Rentokil Initial plc or Terminix Holdings may terminate the Merger Agreement if the Transaction has not been completed by 31 December 2022. However, this right to terminate the Merger Agreement will not be available to Rentokil Initial plc or Terminix Holdings if such party’s material breach of any of its obligations under the Merger Agreement has been the proximate cause of or resulted in the failure of the Transaction to be completed on or before such time. The end date may be extended by Rentokil Initial plc or Terminix Holdings to the Extended Long Stop Date if at the time of any such extension the antitrust-related Conditions are not satisfied but all other Conditions (other than Conditions that by their terms can only be satisfied on the date of Completion) have been satisfied or waived.

 

12 

 

 

Terminix is, and Rentokil Initial may become, the target of securities class actions and derivative lawsuits which could result in substantial costs and may delay or prevent the Transaction from being completed.

 

As at the date of this document, three securities stockholder derivative lawsuits have been brought against Terminix Holdings and its directors and one draft complaint has been sent to Terminix Holdings. Such lawsuits are often brought against companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting Completion, then that injunction may delay or prevent the Transaction from being completed. Given the early stage of the existing proceedings, it is impossible to predict the outcome or estimate possible loss or range of loss.

 

While the Merger Agreement is in effect, Rentokil Initial plc, Terminix Holdings and their respective subsidiaries’ businesses are subject to restrictions on their business activities.

 

Under the Merger Agreement, Rentokil Initial plc, Terminix Holdings and their respective subsidiaries are subject to certain restrictions on the conduct of their respective businesses and generally must operate their respective businesses in the ordinary course prior to completing the Transaction (unless Rentokil Initial plc or Terminix Holdings obtains the other’s consent, as applicable, which is not to be unreasonably withheld, conditioned or delayed), which may restrict Rentokil Initial plc’s and Terminix Holdings’ ability to exercise certain of their respective business strategies. These restrictions may prevent Rentokil Initial plc and Terminix Holdings from pursuing otherwise attractive business opportunities, making certain investments or acquisitions, selling assets, engaging in capital expenditures in excess of certain agreed limits, continuing share repurchase programmes, incurring indebtedness or making changes to Rentokil Initial plc’s and Terminix Holdings’ respective businesses prior to the Completion or termination of the Merger Agreement, as applicable. These restrictions could have an adverse effect on Rentokil Initial plc’s and Terminix Holdings’ respective businesses, financial results, financial condition or share price.

 

In addition, the Merger Agreement prohibits Rentokil Initial plc from (i) soliciting, initiating, knowingly facilitating or knowingly encouraging, subject to certain exceptions set forth in the Merger Agreement, any inquiry or the making or submission of any proposal or offer that constitutes an acquisition proposal (as defined for each party in the Merger Agreement), (ii) (A) entering into or participating in any discussions or negotiations with any third party, (B) furnishing to any third party any information, or (C) otherwise assisting, participating in, knowingly facilitating or knowingly encouraging any third party, in each case, in connection with or for the purpose of knowingly encouraging or facilitating, an acquisition proposal, or (iii) approving, recommending or entering into (or publicly or formally proposing to approve, recommend or enter into), any letter of intent or similar document, agreement, commitment or agreement in principle with respect to an acquisition proposal. These restrictions may prevent Rentokil Initial plc from pursuing a transaction that may be more attractive than the Transaction. These restrictions could have an adverse effect on Rentokil Initial plc’s business, financial results, financial condition or share price.

 

The Combined Group may not realise all of the anticipated benefits of the Transaction.

 

There is a risk that some or all of the expected benefits of the Transaction may fail to materialise, or may not occur within the time periods anticipated by Rentokil Initial plc and Terminix Holdings. The realisation of such benefits may be affected by a number of factors, many of which are beyond the control of Rentokil Initial plc and Terminix Holdings. The challenge of integrating previously independent businesses makes evaluating the business and future financial prospects of the Combined Group following the Transaction difficult. Rentokil Initial and Terminix have operated and, until Completion, will continue to operate, independently. The success of the Transaction, including anticipated benefits and cost savings, will depend, in part, on the ability to successfully integrate the operations of both companies in a manner that results in various benefits, including, among other things, an expanded market reach and operating efficiencies that do not materially disrupt existing customer relationships (including as a result of customer relationships based on personal relationships being disrupted or lost due to personnel changes) nor result in decreased revenues or dividends due to the full or partial loss of customers. The past financial performance of each of Rentokil Initial plc and Terminix Holdings may not be indicative of the future financial performance of the Combined Group.

 

Failure to realise all of the anticipated benefits of the Transaction may impact the financial performance of the Combined Group, the price of the Rentokil Initial Shares and the Rentokil Initial ADSs and the ability of the Combined Group to continue paying dividends on its shares at levels per share consistent with the current dividend or at all. The declaration of dividends by the Combined Group will be at the discretion of its board of directors, which may determine at any time to cease paying dividends, lower the dividend level per share or not increase the dividend level per share.

 

13 

 

 

The Transaction may not be accretive, and may be dilutive, to Rentokil Initial plc’s earnings per share, which may negatively affect the market price of Rentokil Initial Shares and the implied value of the Rentokil Initial ADSs following the Transaction.

 

In connection with Completion, Rentokil Initial plc expects to issue approximately 645 million new Rentokil Initial Shares, in the form of New Rentokil Initial ADSs, and certain Terminix Holdings equity awards are required to be converted into equity awards of Rentokil Initial plc pursuant to the Merger Agreement. The issuance of new Rentokil Initial Shares, in the form of New Rentokil Initial ADSs, could have the effect of depressing the market price of Rentokil Initial Shares.

 

Rentokil Initial plc currently projects that the Transaction will result in a number of benefits, including increased scale and an enlarged platform for profitable growth, and that it will ultimately be accretive to Rentokil Initial plc’s earnings per share. This projection is based on preliminary estimates that may materially change. Future events and conditions could reduce or delay the accretion that is currently projected or result in the Transaction being dilutive to Rentokil Initial plc’s earnings per share, including adverse changes in market conditions, additional transaction and integration related costs and other factors such as the failure to realise some or all of the benefits anticipated in the Transaction. Any dilution of, reduction in or delay of any accretion to, Rentokil Initial plc’s earnings per share could cause the price of Rentokil Initial Shares and the implied value of the Rentokil Initial ADSs to decline or grow at a reduced rate.

 

The additional indebtedness that Rentokil Initial will incur in connection with Completion could adversely affect the Combined Group’s financial position, including by decreasing Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business flexibility and result in a decline in the Combined Group’s credit rating.

 

Following Completion, the Combined Group will have increased borrowings compared to Rentokil Initial’s historic level of borrowings. Rentokil Initial’s consolidated borrowings were £3.8 billion (US$4.7 billion converted at the £:US$ exchange rate on 30 June 2022) as of 30 June 2022. The Combined Group’s pro forma borrowings as of 30 June 2022, if the Transaction had been completed on that same date, would have been approximately £4.6 billion, of which approximately £1.2 billion would have been at variable rates of interest when assuming borrowings for the Transaction are made under the term facility.

 

Rentokil Initial plc has incurred approximately US$2.0 billion of additional debt in connection with the Transaction and may incur up to a further US$700 million of additional debt in connection with the Transaction. This increased level of borrowing could have the effect, among other things, of reducing the Combined Group’s flexibility to respond to changing business and economic conditions and will have the effect of increasing the Combined Group’s interest expenses. In addition, the amount of cash required to service the Combined Group’s increased borrowing levels and increased aggregate dividends following Completion and thus the demands on the Combined Group’s cash resources will be greater than the amount of cash flow required to service Rentokil Initial’s borrowings and pay dividends prior to the Transaction. The increased levels of borrowings and any increase in dividends following Completion could also reduce funds available for the Combined Group’s investments in M&A, research and development, capital expenditures and other activities and may create competitive disadvantages for the Combined Group relative to other companies with lower debt levels.

 

Rentokil Initial’s credit rating impacts the cost and availability of future borrowings and, accordingly, Rentokil Initial’s cost of capital. Rentokil Initial’s credit rating reflects each credit rating organisation’s opinion of Rentokil Initial’s financial and business strength, operating performance and ability to meet its debt obligations. Although Rentokil Initial’s credit rating was reaffirmed by S&P Global Ratings (“S&P”) as BBB following the announcement of the Transaction, if Rentokil Initial’s (and with effect from Completion, the Combined Group’s) credit rating declines, Rentokil Initial (and with effect from Completion, the Combined Group) may not be able to sell additional debt securities, borrow money, refinance the Transaction Facilities if drawn or establish alternatives to the Transaction Facilities in the amounts or at the times or interest rates contemplated thereby (or at all) or upon more favourable terms and conditions that might be available if Rentokil Initial’s current credit rating is maintained.

 

The cost of certain of Rentokil Initial’s existing indebtedness will also increase in the event that Rentokil Initial’s credit rating is sub-investment grade. In addition, future borrowings under circumstances in which the Combined Group’s debt is rated below investment grade may contain further restrictions that impose significant restrictions on the way the Combined Group operates following the Transaction.

 

This risk factor is not intended to qualify the Company’s and the Combined Group’s working capital statements.

 

14 

 

 

An increase in interest rates would increase the cost of servicing Rentokil Initial’s debt and could adversely impact its business, results of operations, financial condition and/or prospects.

 

Facility B, which forms part of Rentokil Initial’s Transaction financing, will bear interest at a floating rate. As a result, to the extent Rentokil Initial has not hedged against rising interest rates, an increase in the applicable benchmark interest rates would increase the cost of servicing the debt in the future and could materially and adversely affect Rentokil Initial’s results of operations, financial condition, liquidity and cash flows. In addition, if Rentokil Initial refinances its indebtedness and interest rates increase between the time an existing financing arrangement was consummated and the time such financing arrangement is refinanced, the cost of servicing debt would increase, which could have a material adverse effect on Rentokil Initial’s business, results of operations, financial condition and/or prospects.

 

Prior to Completion, each of Rentokil Initial and Terminix (and with effect from Completion, the Combined Group) may have difficulty attracting, motivating and retaining executives and other employees in light of the Transaction.

 

The Combined Group’s success after Completion will depend in part on its ability to retain key executives and other employees. Uncertainty about the effect of the Transaction on employees of Rentokil Initial and Terminix may have an adverse effect on each of Rentokil Initial and Terminix and consequently on the Combined Group. This uncertainty may, prior to Completion, impair Rentokil Initial’s and/or Terminix’s, and post-Completion the Combined Group’s, ability to attract, retain and motivate personnel. Employee retention may be particularly challenging during the pendency of the Transaction, as employees of Rentokil Initial and Terminix may experience uncertainty about their future roles in the Combined Group.

 

Additionally, Terminix’s officers and employees may hold Terminix Shares and/or certain equity awards, and, if the Transaction is completed, these officers and employees may be entitled to the Merger Consideration in respect of such Terminix Shares and/or certain equity awards. Under agreements between Terminix and certain of its employees, such employees could potentially resign from employment on or after Completion that could result in severance payments to such employees and accelerated vesting of their equity awards. These payments and accelerated vesting benefits, individually or in the aggregate, could make retention of Terminix employees more difficult.

 

Furthermore, if employees of Rentokil Initial or Terminix depart or are at risk of departing, including because of issues relating to the uncertainty and difficulty of integration, financial security or a desire not to become employees of the Combined Group, Rentokil Initial may have to incur significant costs in retaining such individuals or in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent. As a result, the Combined Group’s ability to realise the anticipated benefits of the Transaction may be materially and adversely affected. No assurance can be given that the Combined Group will be able to attract or retain employees to the same extent that Rentokil Initial and Terminix have been able to attract or retain employees in the past.

 

Certain Terminix agreements may contain change of control or anti-assignment provisions that may be triggered by the Transaction and that, if acted upon or not waived, could cause the Combined Group to lose the benefit of such agreements and incur liabilities or replacement costs, which could have an adverse effect on the Combined Group.

 

Terminix is party to, or may become party to after the date of this document, various agreements with third parties that may contain change of control or anti-assignment provisions that may be triggered upon Completion. Agreements with such provisions may provide for or permit the termination of the agreement upon the occurrence of a change of control of, or the assignment of such contract by, one of the parties unless it is waived by the relevant counterparties. In the event that there is such a contract or arrangement requiring a consent or waiver in relation to the Transaction, for which such consent or waiver was not obtained, the Combined Group could lose the benefit of the underlying agreement and incur liabilities or replacement costs, which could have an adverse effect on the business, results of operations, financial condition and/or prospects of the Combined Group.

 

The announcement and pendency of the Transaction could adversely affect Rentokil Initial’s and Terminix’s respective businesses, results of operations, financial condition and/or prospects.

 

The announcement and pendency of the Transaction could cause disruptions in and create uncertainty surrounding Rentokil Initial’s and Terminix’s business, including affecting their relationships with existing and future customers and suppliers, which could have an adverse effect on Rentokil Initial’s and Terminix’s business, results of operations, financial condition and/or prospects, regardless of whether the Transaction is completed. Rentokil Initial and Terminix could also potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, each of Rentokil Initial plc and Terminix Holdings has expended, and continues to expend, significant management resources in an effort to complete the Transaction, which are being diverted from Rentokil Initial’s and Terminix’s day-to-day operations.

 

15 

 

 

If the Transaction is not completed, Rentokil Initial plc’s and Terminix Holdings’ share prices may fall if and to the extent that the current prices of Rentokil Initial Shares and Terminix Shares reflect a market assumption that the Transaction will be completed. In addition, the failure to complete the Transaction may result in negative publicity or a negative impression of Rentokil Initial in the investment community and may affect Rentokil Initial’s relationship with colleagues, customers, suppliers and other partners in the business community.

 

Rentokil Initial plc and Terminix Holdings will incur substantial transaction fees and costs in connection with the Transaction.

 

Rentokil Initial plc and Terminix Holdings have incurred and expect to incur additional material non-recurring expenses in connection with the Transaction and Completion, including costs relating to obtaining required approvals and in change in control payments. Rentokil Initial plc and Terminix Holdings have incurred significant financial services, accounting, tax and legal fees in connection with the process of negotiating and evaluating the terms of the Transaction. Additional significant unanticipated costs may be incurred in the course of coordinating the businesses of Rentokil Initial and Terminix after Completion. Even if the Transaction is not completed, Rentokil Initial plc and Terminix Holdings will need to pay certain costs relating to the Transaction incurred prior to the date the Transaction was abandoned, such as financial advisory, accounting, tax, legal, filing and printing fees. Such costs may be significant and could have an adverse effect on the parties’ future business, results of operations, financial condition and/or prospects.

 

In addition to its own fees and expenses, in the event the Rentokil Initial Shareholders do not approve the Resolutions, and as a result the Merger Agreement is terminated, Rentokil Initial plc may be required to pay by way of compensation an amount equal to US$50 million to Terminix Holdings. Rentokil Initial plc may also be required to pay Terminix Holdings by way of compensation a termination payment of US$150 million if the Merger Agreement is terminated under the circumstances specified in the Merger Agreement.

 

The Transaction may affect the application of new or existing tax rules to the Combined Group which could result in a material impact on the Combined Group’s cash tax liabilities and tax charges.

 

Changes in tax regimes, such as those that have been proposed by the current administration in the United States that include raising the corporate tax rate and raising the tax rate on global intangible low-taxed income, could result in a material impact on the cash tax liabilities and tax charges of the Combined Group. The Combined Group will have a greater presence in the United States following the acquisition of Terminix Holdings than the existing Rentokil Initial, which means that changes to tax rules in the United States could have a more significant impact. Such an impact could also arise from changes in the application of existing tax rules, including UK tax rules, to Rentokil Initial as a result of the Transaction. In either case, this could result in a reduction in financial results depending upon the nature of the change.

 

Risks related to Rentokil Initial and, with effect from Completion, the Combined Group

 

Risks relating to business strategies and operations

 

If Rentokil Initial (and with effect from Completion, the Combined Group) is unsuccessful in integrating acquisitions (including the Transaction) or if its disposals result in unexpected costs or liabilities, its business could be materially and adversely affected.

 

Rentokil Initial has a strategy that includes growth by acquisition, for example it acquired 52 new businesses in 2021. M&A activity is a core part of Rentokil Initial’s strategy to extend its geographic footprint and to improve its market share in existing locations, and Rentokil Initial (and with effect from Completion, the Combined Group) may continue to pursue strategic transactions in the future, which could involve acquisitions or disposals of businesses or assets. There are a number of risks to the successful integration of acquired businesses. These risks include the possibility that management may be distracted from regular business concerns by the need to integrate operations and that unforeseen difficulties can arise in integrating operations and systems and retaining and assimilating the employees. In addition, even where a diligent review of the businesses and/or properties acquired in connection with such acquisitions is performed in accordance with industry norms, such reviews may be incomplete and not necessarily reveal all existing or potential problems, including actual or contingent liabilities, or permit a full assessment of the deficiencies associated with the businesses or properties.

 

16 

 

 

Any acquisition that Rentokil Initial (and with effect from Completion, the Combined Group) makes may not provide it with the benefits that were anticipated when entering into such acquisition. If Rentokil Initial fails to: (i) successfully integrate acquisitions into its existing organisational structures; (ii) deliver the revenue and profit targets; or (iii) deliver any expected synergy benefits such as cost savings, the acquired business may not achieve the expected financial and operational benefits which could lead to potential adverse short-term or long-term effects on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

There is a risk that the Transaction and integration of Rentokil Initial and Terminix may consume management time and resources, making the execution of M&A activity in furtherance of the Combined Group’s strategy more difficult to execute.

 

In addition, Rentokil Initial has sold a number of its businesses in the past and expects to continue to dispose of businesses from time to time if consistent with its strategy. Furthermore, under business sale contracts, Rentokil Initial (and with effect from Completion, the Combined Group) may provide warranties and indemnities to purchasers. Accordingly, Rentokil Initial (and with effect from Completion, the Combined Group) may make provisions in its consolidated financial statements for potential liabilities and costs relating to a disposed business. Rentokil Initial (and with effect from Completion, the Combined Group) may also make provision in its financial statements for amounts to cover legal or regulatory claims which are known to be outstanding at the time of sale or which may subsequently become apparent. There can be no assurance that such provisions will be sufficient to cover potential liabilities and consequently disposals of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) businesses may have a material adverse effect on its business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial (and with effect from Completion, the Combined Group) may experience difficulties integrating, streamlining and optimising its IT systems, processes and technologies.

 

Rentokil Initial has invested in, and expects to continue to invest in, a wide range of new systems, processes and technologies intended to improve many aspects of its business. These systems, processes and technologies impact customers, suppliers, colleagues and others, including new systems that integrate, streamline and enhance legacy operating IT systems. These activities have required, and may continue to require, significant investment of human and financial resources. Rentokil Initial (and with effect from Completion, the Combined Group) may experience significant delays, increased costs and other difficulties as a consequence of significant disruption or deficiency in implementing such systems, processes and technologies, which could adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to process work orders, send invoices and track and collect payments, fulfil contractual obligations or otherwise operate its business. In addition, Rentokil Initial’s (and with effect from Completion, the Combined Group’s) efforts to centralise various business processes within its organisation in connection with this implementation may disrupt operations and negatively impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects. Rentokil Initial may also experience difficulties, costs or delays in migrating acquired businesses to its systems, processes and technologies.

 

Rentokil Initial depends (and with effect from Completion, the Combined Group will depend) on a suitably skilled and qualified labour force to maintain the business.

 

Rentokil Initial’s ability to maintain its customer service and execute its business strategy depends on its ability to attract and retain a suitably skilled and qualified labour force. There can be no assurance that Rentokil Initial (and with effect from Completion, the Combined Group) will be able to recruit, train and retain such a labour force in sufficient numbers or of sufficient quality, or that pressure to recruit will not lead to a significant increase in colleague costs. In markets where overall employment rates are high, and/or its business is growing quickly either organically or through acquisitions, Rentokil Initial (and with effect from Completion, the Combined Group) may have difficulties attracting, training and retaining operational personnel of suitable capability. In addition, changes in the global job market (including those caused or accelerated by the COVID- 19 pandemic) may cause (or continue to cause) difficulty in recruiting, training and retaining a suitably skilled and qualified labour force. As a result, Rentokil Initial could experience difficulty in responding to customer calls in a timely fashion or delivering its services in a high-quality or timely manner, and could be forced to increase wages to attract, train and retain colleagues, which would result in higher operating costs and reduced profitability. Any of these factors may have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

17 

 

 

Moreover, some of Rentokil Initial and Terminix’s colleagues and employees, respectively, are members of local trade unions and similar organisations. Industrial action in key operations could result in diminished customer service levels or higher costs and, if prolonged, could damage Rentokil Initial’s (and with effect from Completion, the Combined Group’s) reputation and ability to retain existing customers or acquire new customers. Although Rentokil Initial plc believes that all of Rentokil Initial’s operations have good relations with their colleagues and the trade unions that represent those colleagues (where applicable), there can be no assurance that work stoppages or other labour-related developments (including the introduction of new labour regulations in countries where Rentokil Initial (and with effect from Completion, the Combined Group) operates) will not adversely affect its business, reputation, results of operations, financial condition and/or prospects. In addition, potential competition from key colleagues who leave Rentokil Initial (and with effect from Completion, the Combined Group) could impact its ability to maintain its market share in certain geographic areas.

 

Rentokil Initial depends (and with effect from Completion, the Combined Group will depend) on key personnel to lead Rentokil Initial’s business.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) continued success will largely depend on its ability to attract, retain and develop a high calibre of talent and on the efforts and abilities of its executive officers and certain other key colleagues. As Rentokil Initial (and with effect from Completion, the Combined Group) continues to grow its business, make acquisitions, expand its geographic scope and offer new products and services, Rentokil Initial (and with effect from Completion, the Combined Group) needs the organisational talent necessary to ensure effective succession for executive officer and key colleague roles in order to meet the growth, development and profitability goals of its business. Rentokil Initial’s (and with effect from Completion, the Combined Group’s) operations could be materially and adversely affected if for any reason Rentokil Initial (and with effect from Completion, the Combined Group) was unable to attract, retain or develop such officers or key colleagues and successfully execute organisational change and management transitions at leadership levels.

 

ESG matters, including those related to climate change and sustainability, may have an adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

Increased focus and activism related to ESG matters may hinder Rentokil Initial’s (and with effect from Completion, the Combined Group’s) access to capital, as investors may reconsider their capital investment as a result of their assessment of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ESG practices. Customers, consumers, investors and other stakeholders are increasingly focusing on ESG issues, including climate change, water use, deforestation, plastic waste, human and animal health and welfare, chemical usage and other concerns. Changing customer preferences are resulting in, and may continue to result in, increased demands regarding plastics and packaging materials, including single-use and non-recyclable plastic packaging, and other components of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) products and their impact on human and animal health and environmental sustainability; a growing demand for natural, organic or non-toxic products and ingredients; or increased customer concerns or perceptions (whether accurate or inaccurate) regarding the effects of ingredients or substances present in certain products. Certain animal welfare advocacy groups may raise concerns regarding products such as glue boards or snap traps perceived to have animal cruelty issues. These demands, perceptions and preferences could cause Rentokil Initial (and with effect from Completion, the Combined Group) to incur additional costs or to make changes to its operations to comply with such demands and customer preferences, and a delay in Rentokil Initial’s (and with effect from Completion, the Combined Group’s) response (or the failure to respond effectively) may lead to adverse effects to its business, results of operations and financial condition, and recruitment and retention of the labour force that it needs.

 

Concern over climate change or plastics and packaging materials, in particular, may result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment. Increased regulatory requirements, including in relation to various aspects of ESG including disclosure requirements, may result in increased compliance costs or input costs of energy and raw materials, which may cause disruptions in the manufacture of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) products or an increase in operating costs, and these costs could have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) results of operations and cash flows. Any failure to achieve its ESG goals or a perception (whether or not valid) of its failure to act responsibly with respect to ESG issues or to effectively respond to new, or changes in, legal or regulatory requirements concerning environmental or other ESG matters, or increased operating or manufacturing costs due to increased regulation could adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operation, financial condition and/or prospects. In addition, Rentokil Initial (and with effect from Completion, the Combined Group) may also be adversely impacted as a result of conduct by contactors, customers or suppliers that fail to meet Rentokil Initial’s (and with effect from Completion, the Combined Group’s) or its stakeholders’ ESG standards.

 

18 

 

 

Inflationary pressures, such as increases in wages, fuel prices and other operating costs, could adversely impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, results of operations, financial condition and/or prospects.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) financial performance may be adversely affected by sudden or material increases in the level of its operating costs and expenses, which may be subject to inflationary pressures, and it may not be able to pass these increases on fully, or in a timely manner, to customers. For example, fuel prices are subject to market volatility, and Rentokil Initial’s and Terminix’s fleet has been negatively impacted by significant increases in fuel prices in the past and could be negatively impacted in the future. In addition, Rentokil Initial continues to monitor any adverse impact that the ongoing conflict in Ukraine and the subsequent institution and extension of sanctions against various Russian organisations, companies and individuals, may have on the global economy in general and on Rentokil Initial’s business operations, although neither Rentokil Initial nor Terminix has any direct operations in Russia or the Ukraine. Such events have increased fuel prices, and a prolonged conflict may have further negative consequences such as increased inflation and transportation costs. Fuel price increases have also caused increases in the cost of chemicals and other materials used in Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business. Increases in fuel, and other costs, have not negatively affected Rentokil Initial’s results of operations as of 30 June 2022, as Rentokil Initial has been able to pass along such increases to customers in the form of increased prices. However, Rentokil Initial cannot predict the extent to which it may experience future cost increases. To the extent such costs increase further, Rentokil Initial (and with effect from Completion, the Combined Group) may be prevented, in whole or in part, from passing these cost increases on to its existing and prospective customers, which could have a material adverse impact on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) results of operations, financial condition and/or prospects.

 

Supply chain issues may result in product shortages or disruptions to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business.

 

Rentokil Initial has a complex global network of suppliers that has recently expanded to meet increased customer demand and may, in the future, further evolve in response to market conditions. Although the majority of the products used by Rentokil Initial are generally available from multiple sources, and alternatives have been generally available in the event of disruption in the past, Rentokil Initial (and with effect from Completion, the Combined Group) could experience material disruptions in production and other supply chain issues (including as a result of current global supply issues affecting microchips and printed circuit boards), which could result in out-of-stock conditions, and its results of operations and relationships with customers could be adversely affected (a) if new or existing suppliers are unable to meet any standards set by Rentokil Initial (and with effect from Completion, the Combined Group), government or industry regulations or customers, (b) if Rentokil Initial (and with effect from Completion, the Combined Group) is unable to contract with suppliers at the quantity, quality and price levels needed for its business, or (c) if any of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) key suppliers becomes insolvent, ceases or significantly reduces its operations or experiences financial distress.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) inability to fully or substantially meet customer demand due to supply chain issues could result in, among other things unmet consumer demand leading to reduced preference for Rentokil Initial’s (and with effect from Completion, the Combined Group’s) products or services in the future, customers purchasing products and services from competitors as a result of such shortage of products, strained customer relationships, termination of customer contracts, additional competition and new entrants into the market, and loss of potential sales and revenue, which could adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

19 

 

 

Weakening general economic conditions, including rising unemployment or decreased consumer confidence or spending levels, especially as they may affect demand from Rentokil Initial’s (and with effect from Completion, the Combined Group’s) customers, may adversely impact its business, results of operations, financial condition and/or prospects.

 

Ongoing volatility in the global economic environment has led to, and may continue to lead to, economic challenges such as low gross domestic product growth in regional and national economies, high volatility in commodity prices and exchange rates and efforts made by governments to increase the minimum wage across markets, as well as wide variations in local market prices and cost inflation across the globe. This may be exacerbated by economic uncertainty caused by geopolitical events, political instability and civil unrest in some local markets, catastrophic business events, including the continuation and/or broadening of the conflict in the Ukraine and the impact of the COVID-19 pandemic. Further economic slowdown in the markets in which Rentokil Initial (and with effect from Completion, the Combined Group) operates may lead to a reduction in the level of demand from its customers for existing and new services. Low-growth economies with inherent cost inflation may make it difficult for Rentokil Initial (and with effect from Completion, the Combined Group) to maintain profitability if it has weak pricing power in those markets, in particular, if there are strong competitive pressures. Furthermore, adverse economic conditions may lead to an increased number of customers not renewing contracts or seeking to reduce prices leading to a reduction in profit margins and cash flows or being unable to pay for existing or additional services leading to an increase in bad debts. Any of these events could have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial (and with effect from Completion, the Combined Group) may not successfully implement its business strategies, including achieving its growth objectives.

 

Rentokil Initial (and with effect from Completion, the Combined Group) may not be able to fully implement its business strategies or realise, in whole or in part within the expected time frames, the anticipated benefits of various growth or other initiatives. Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to implement its business strategy may be adversely affected by factors that Rentokil Initial plc cannot currently foresee, such as unanticipated costs and expenses, technological change, severe economic downturn (including as a result of the impact of the COVID-19 pandemic and/or the conflict in Ukraine), the level of interest rates, foreign exchange risks, failure to integrate acquisitions, a decline in the effectiveness of Rentokil Initial’s marketing (including digital marketing) activities or disruptions in the supply chain. All of these factors may necessitate changes to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business strategy or adversely affect its business, reputation, results of operations, financial condition and/or prospects.

 

In addition, Rentokil Initial (and with effect from Completion, the Combined Group) will incur certain costs to achieve efficiency improvements, systems implementations and growth in Rentokil Initial’s business, and Rentokil Initial (and with effect from Completion, the Combined Group) may not meet anticipated implementation timetables or stay within budgeted costs. As these efficiency improvements, system implementations and growth initiatives are implemented, Rentokil Initial (and with effect from Completion, the Combined Group) may not fully achieve expected cost savings and efficiency improvements, system implementations or growth rates, or these initiatives could adversely impact customer retention or its operations. Also, Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business strategies may change in light of its ability to implement new business initiatives, competitive pressures, economic uncertainties or developments or other factors.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) continued growth depends on its ability to retain existing customers and attract new customers.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to grow is dependent on its ability to retain existing customers and attract new customers. There can be no assurance that Rentokil Initial’s (and with effect from Completion, the Combined Group’s) strategy of using new technology and improved sales techniques to attract profitable new clients, up-selling and cross-selling to existing clients and focusing on retaining profitable business when renewing existing consumer contracts will be successful. Moreover, failure to maintain customer service, client management and sales capability, failure to adapt to local business and consumer needs and/or failure to win and retain profitable customers in the face of competition from competitors with lower costs or which are willing to accept lower margins may have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, results of operations, financial condition and/or prospects.

 

20 

 

 

Rentokil Initial (and with effect from Completion, the Combined Group) must be sufficiently agile to develop and deliver products and services that meet local market needs. If Rentokil Initial (and with effect from Completion, the Combined Group) is not able to adapt to local business and consumer needs, its existing customers may choose not to renew contracts, reduce the use of Rentokil Initial’s services across their operations or seek reductions in prices.

 

Rentokil Initial (and with effect from Completion, the Combined Group) must continue to develop products and services that meet the needs and expectations of its customer base, including to ensure the continued efficacy of its products in the target pest population. Furthermore, as technological developments disrupt the markets in which Rentokil Initial and Terminix operate and change service offerings across their industries, Rentokil Initial (and with effect from Completion, the Combined Group) may need to develop new products and services. In the future, products and services may interact with each other in new ways and offer new capabilities to consumers, such as systems that are networked and able to be monitored in real time. Rentokil Initial’s (and with effect from Completion, the Combined Group’s) competitors may be earlier to embrace these new technological developments that are disruptive to the market or to develop more effective products, and a delay in Rentokil Initial’s (and with effect from Completion, the Combined Group’s) response may lead to adverse effects to its business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) industries are highly competitive.

 

Rentokil Initial and Terminix compete with a wide variety of competitors of varying sizes and face competition in many of the markets in which they operate. The growing presence of multinational competitors may increase the cost of acquisitions and/or drive down prices, impacting Rentokil Initial’s (and with effect from Completion, the Combined Group’s) profitability. Furthermore, the increased presence of facilities management companies in the markets in which Rentokil Initial (and with effect from Completion, the Combined Group) operates may also drive down prices and adversely impact the quality of relationships with end customers. The principal methods of competition in Rentokil Initial’s business include quality and speed of customer service, brand awareness and reputation, effective use of technology and systems, customer satisfaction, fairness of contract terms (including price and promotions), professional sales forces and referrals. Rentokil Initial (and with effect from Completion, the Combined Group) may be unable to compete successfully against current or future competitors, and the competitive pressures that Rentokil Initial (and with effect from Completion, the Combined Group) faces may result in reduced market share, reduced pricing or an adverse impact on its reputation, business, results of operations and financial condition.

 

Cybersecurity breaches, attacks and other similar incidents, as well as disruptions or failures in Rentokil Initial’s (and with effect from Completion, the Combined Group’s) IT systems or data security procedures and those of its third-party service providers, could expose Rentokil Initial (and with effect from Completion, the Combined Group) to liability, limit its ability to effectively monitor, operate and control operations and adversely impact its business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial’s and Terminix’s businesses are dependent on effective IT systems and data security procedures. Rentokil Initial, Terminix, and with effect from Completion, the Combined Group, and their third-party service providers may be subject to significant system or network disruptions from numerous causes, including cybersecurity breaches, attacks (including denial of service attacks) or other similar incidents, facility access issues, new system implementations, human error, fraud, theft, fire, power loss, telecommunications failure or a similar catastrophic event. Moreover, computer viruses, worms, malware, ransomware, phishing, spoofing, malicious or destructive code, social engineering, denial-of-service attacks, and other cyberattacks have become more prevalent and sophisticated in recent years. Because the techniques used by computer hackers and others to access or sabotage networks and computer systems constantly evolve and generally are not recognised until launched against a target, Rentokil Initial (and with effect from Completion, the Combined Group) and its third-party service providers may be unable to anticipate, detect, react to, counter or mitigate against all of these techniques or remediate any resulting incident. Cybersecurity risk has increased due to increased online and remote activity (a trend accelerated by the COVID-19 pandemic) and Rentokil Initial and Terminix have experienced a notable increase in the number and seriousness of cyberattacks, including repeated distributed denial of service attacks and attempted ransomware incidents in countries such as Brazil and Italy. The attacks were detected and prevented before they were able to have a material impact on the business, but it is possible that future cyberattacks could avoid detection or prevention and have such a material impact. Any IT system disruptions or breaches may lead to unauthorised release of data and inefficient business operations, including poor supply chain management, and have a negative impact on customer service, resulting in a loss of customers, which could have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

21 

 

 

Rentokil Initial (and with effect from Completion, the Combined Group) may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate or remediate any cybersecurity vulnerabilities, breaches, attacks or other similar incidents. Any cybersecurity incident, attack or other similar incident, or its failure to make adequate or timely disclosures to the public, regulators, or law enforcement agencies following any such event, could harm Rentokil Initial’s (and with effect from Completion, the Combined Group’s) competitive position, result in violations of applicable data privacy or cybersecurity laws or regulations, result in a loss of customer confidence in the adequacy of threat mitigation and detection processes and procedures, cause disruption to business activities, divert management attention and other resources or otherwise adversely affect the internal operations and reputation of Rentokil Initial (and with effect from Completion, the Combined Group), degrade financial results, cause it (and with effect from Completion, the Combined Group) to incur significant costs to remedy the damages caused by the incident or defend legal claims, subject it to additional regulatory scrutiny and expose Rentokil Initial (and with effect from Completion, the Combined Group) to civil litigation, fines, damages or injunctions. With respect to cybersecurity-related legal claims and regulatory scrutiny, Rentokil Initial also may incur additional costs related to the diverse set of laws, rules and regulations to which it is subject across multiple jurisdictions.

 

Extraordinary events may significantly impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business if it is unable to ensure business continuity due to a material incident.

 

The ability to service customers without interruption is essential to Rentokil Initial’s (and with effect from Completion, the Combined Group) operations. Contingency plans are required to continue or recover operations following a disruption or incident. Such incidents may include (a) the loss or insolvency of a major distributor, (b) repeated or prolonged government shutdowns or similar events, (c) war (including acts of terrorism or hostilities which impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) markets), (d) natural or man-made disasters, (e) water shortages, (f) cybersecurity, IT or privacy-related incidents or (g) severe weather conditions affecting Rentokil Initial’s (and with effect from Completion, the Combined Group’s) operations or the food service, hospitality and travel industries may have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business. Inability to restore or replace critical capacity to an agreed level within an agreed time frame would prolong the impact of such disruption or incident and could lead to, among other things, negative publicity and reputational damage and could severely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial has (and with effect from Completion, the Combined Group will have) independent, third-party distributors, the loss of which could have an adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

Government shutdowns can have a material adverse effect on operations or cash flows by disrupting or delaying new product launches, renewals of registrations for existing products and receipt of import or export licenses for raw materials or products.

 

War (including acts of terrorism or hostilities), natural or man-made disasters, water shortages or severe weather conditions affecting the food service, hospitality, travel and other industries can cause a downturn in the business of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) customers, which in turn can have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, results of operations, financial condition or prospects. Hurricanes or other severe weather events impacting the local markets could materially and adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to obtain raw materials at reasonable cost, or at all, and could adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business. The health and safety of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) colleagues in local markets could be harmed by the detrimental effects of natural and man-made disasters, which could have a material adverse effect on its business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial (and with effect from Completion, the Combined Group) may not be able to adequately protect its intellectual property and other proprietary rights that are material to its business.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to compete effectively depends in part on its ability to obtain, maintain, protect, defend and enforce its intellectual property and other proprietary rights, including the service marks, trademarks, trade names and other intellectual property rights Rentokil Initial (and with effect from Completion, the Combined Group) owns or licenses, particularly its brand names, including Rentokil, Initial, Ambius, Steritech, JC Ehrlich, Presto-X, Western Exterminator, Florida Pest Control, Eradico, Cannon, Sanitact, Ultraprotect, PestConnect, HygieneConnect, Entotherm, Calmic, Turf Fuel, Lumnia, Luminos, SOLitude, Batzner, Medentex, OnBrand360, Peter Cox, Environmental Pest Service, Pestfree365, Activap, Prokill, Micronclean and Microfresh, and following Completion, Terminix’s brand names including Terminix, Copesan, Assured Environments, Gregory, McCloud and Nomor. Rentokil Initial has not sought (and with effect from Completion, the Combined Group will not seek) to register or protect all of its intellectual property, including its trademarks, either in the UK, US or in every jurisdiction in which they are or may be used. Furthermore, because of the differences in foreign trademark, patent and other intellectual property laws, Rentokil Initial (and with effect from Completion, the Combined Group) may not receive the same protection in other countries as it would in the UK or the US.

 

22 

 

 

If Rentokil Initial (and with effect from Completion, the Combined Group) is unable to protect its intellectual property and other proprietary rights, including brand names, it could cause a material adverse impact on its business, reputation, results of operations, financial condition and/or prospects. Litigation may be necessary to enforce Rentokil Initial’s (and with effect from Completion, the Combined Group’s) intellectual property rights and protect its proprietary information, or to defend against claims by third parties that its products, services or activities infringe their intellectual property rights.

 

Rentokil Initial relies, and, with effect from Completion, the Combined Group will rely, on third parties, including third-party vendors for business process outsourcing initiatives, investment counterparties, and, with effect from Completion, franchisees. Any termination or disruption of such relationships or counterparty default or litigation could have a material adverse effect on its business.

 

Rentokil Initial’s strategy to increase profitability, in part, by reducing its costs of operations, and to mitigate and manage its exposure to financial risk, includes the implementation of certain business process outsourcing initiatives and entry into arrangements with investment counterparties, including lenders, insurers and derivative counterparties. As such, Rentokil Initial is exposed to counterparty risk. Any disruption, termination or substandard performance of these outsourced services, including possible breaches by third-party vendors of their agreements with Rentokil Initial (and with effect from Completion, the Combined Group), or the failure of counterparties to discharge all or part of their obligations (including, for example, due to the deterioration of a counterparty’s actual or perceived creditworthiness) could adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) reputation, customer and colleague relationships, results of operations and financial condition. Also, to the extent a third-party outsourcing provider or counterparty relationship is terminated, there is a risk of disputes or litigation and that Rentokil Initial (and with effect from Completion, the Combined Group) may not be able to enter into a similar agreement with an alternate provider in a timely manner or on terms that Rentokil Initial (and with effect from Completion, the Combined Group) considers favourable, and even if Rentokil Initial (and with effect from Completion, the Combined Group) finds an alternate provider, or chooses to insource such services or activities, there are significant risks associated with such transition.

 

In addition, to the extent Rentokil Initial (and with effect from Completion, the Combined Group) decides to terminate outsourcing services and insource such services, there is a risk that Rentokil Initial (and with effect from Completion, the Combined Group) may not have the capabilities to perform these services internally, resulting in a disruption to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, which could adversely impact its business, reputation, results of operations, financial condition and/or prospects. Rentokil Initial (and with effect from Completion, the Combined Group) could incur costs, including personnel and equipment costs, to insource previously outsourced services like these, and these costs could adversely affect its results of operations and cash flows.

 

Third-party distributors, subcontractors, vendors and (in relation to the Combined Group) franchisees are independent third parties that Rentokil Initial does not (and with effect from Completion, the Combined Group will not) control, and who own, operate and oversee the daily operations of their businesses. If third party distributors, subcontractors, vendors and franchisees do not successfully operate their businesses in a manner consistent with required laws, standards and regulations, Rentokil Initial (and with effect from Completion, the Combined Group) could be subject to claims from regulators or legal claims for the actions or omissions of such third-party distributors, subcontractors, vendors and (in relation to the Combined Group) franchisees. In addition, Rentokil Initial’s (and with effect from Completion, the Combined Group’s) relationship with third party distributors, subcontractors, vendors and (in relation to the Combined Group) franchisees could become strained (including resulting in litigation) and these strains in relationships or claims could have a material adverse impact on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

23 

 

 

From time to time, Terminix has received, and, with effect from Completion, the Combined Group may receive, communications from franchisees regarding complaints, disputes or questions about Terminix’s (and with effect from Completion, the Combined Group’s) practices and standards. If franchisees or groups representing franchisees were to bring legal proceedings against the Combined Group, this could adversely impact its business, reputation, results of operations, financial condition and/or prospects.

 

Rentokil Initial must and, with effect from Completion, the Combined Group will need to, maintain effective internal controls and, with effect from Completion, the Combined Group will need to ensure its internal control over financial reporting complies with the Sarbanes-Oxley Act.

 

Although Rentokil Initial maintains a strong focus on regular financial controls testing to mitigate the risk of fraud, financial crime, material misstatement of financial information or unintended release of personal data, including self-assessment exercises each year with independent testing by the external auditors, there can be no assurance that these controls are adequate or operate effectively. In addition, the increased trend to work from home also increased, and may continue to increase, the risk of potential fraud and requires Rentokil Initial (and with effect from Completion, the Combined Group) to focus on stronger financial control processes. In the event that these controls are not adequate or do not operate effectively to prevent fraud, financial crime, misstatement of financial or other records or the unintended release of personal data, this may result in incorrect financial information being released, loss of personal data of customers, suppliers or colleagues, financial loss, damage to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) reputation and/or penalties imposed by regulators.

 

Rentokil Initial is not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and is therefore not required to evaluate the effectiveness of its internal control over financial reporting. However, following its US listing and SEC registration, beginning as of the year ended 31 December 2023, Rentokil Initial plc will be required to evaluate the effectiveness of its internal control over financial reporting and its independent auditor will be required to audit management’s assessment of the effectiveness of its internal control over financial reporting.

 

While Rentokil Initial plc has yet to design and establish an internal control over financial reporting framework for the purposes of the effectiveness evaluation described above, Rentokil Initial plc has undertaken a preliminary assessment of its controls in connection with the preparation of the registration statement, of which this prospectus forms a part. In addition, during the preparation of its 2021 financial statements, Rentokil Initial identified errors to its 2020 and 2019 financial statements which resulted in restatements of those period. As a result of both the preliminary assessment and the restatements, Rentokil Initial plc identified the following material weaknesses in its internal control over financial reporting:

 

(a)a lack of sufficient resources with the appropriate level of technical accounting knowledge, particularly for non-routine transactions, combined with incomplete policies and procedures as related to the segregation of duties and control activities required for accurate and timely financial accounting, reporting, and disclosures in accordance with the financial reporting requirements set forth by the SEC; and

 

(b)a failure to design and maintain effective IT controls over user access, change management, database management and segregation of duties for information systems that are relevant to the preparation of its financial statements.

 

Though Rentokil Initial plc has started to design remediation measures in respect of these material weaknesses, it has not yet implemented or tested the effectiveness of the remediation measures. Moreover, Rentokil Initial plc cannot be certain that it will not identify other material weaknesses in its internal control over financial reporting as it designs, implements and tests its internal control over financial reporting framework in anticipation of its initial effectiveness evaluation. Moreover, when Rentokil Initial plc evaluates the effectiveness of its internal control over financial reporting in connection with its annual report for the year ended 31 December 2023, there can be no guarantee that Rentokil Initial plc or its independent auditor will not identify other material weaknesses in its internal control over financial reporting.

 

If Rentokil Initial plc fails to achieve and maintain effective internal control over financial reporting, it could suffer material misstatements in its consolidated financial statements, fail to meet its reporting obligations or fail to prevent fraud, which may cause investors to lose confidence in its reported financial information and subject Rentokil Initial plc to potential delisting from the NYSE, regulatory investigations and civil or criminal sanctions.

 

24 

 

 

Rentokil Initial (and with effect from Completion, the Combined Group) may be required to recognise impairment charges or be subject to asset revaluations or downgrades.

 

Rentokil Initial has significant amounts of goodwill and intangible assets, such as customer lists. In accordance with applicable accounting standards, goodwill and indefinite-lived intangible assets are not amortised and are subject to assessment for impairment by applying a fair-value based test annually, or more frequently if there are indicators of impairment, including:

 

(a)observable indications that the asset’s value has declined significantly more than would be expected as a result of the passage of time or normal use;

 

(b)significant changes with an adverse effect on the entity that have taken place, or will take place, in the near future, in the technological, market, economic or legal environment in which the entity operates, or in the market to which an asset is dedicated;

 

(c)market interest rates or other market rates of return on investments have increased, and those increases are likely to affect the discount rate used in calculated an asset’s value in use and decrease the asset’s recoverable amount materially;

 

(d)the carrying amount of the net assets of the entity is more than its market capitalisation;

 

(e)evidence that there is obsolescence or physical damage of the asset;

 

(f)significant changes with an adverse effect on the entity that have taken, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite; and

 

(g)indication that the economic performance of an asset is, or will be, worse than expected.

 

Based upon future economic and financial market conditions, the operating performance of Rentokil Initial (and with effect from Completion, the Combined Group) and other factors, including those listed above, Rentokil Initial (and with effect from Completion, the Combined Group) may incur impairment charges in the future, including in relation to the Transaction in respect of goodwill created and the value at which assets were recognised at Completion. It is possible that such impairment, if required, could be material. Any future impairment charges that Rentokil Initial (and with effect from Completion, the Combined Group) is required to record could have a material adverse impact on its business, results of operations, financial condition and/or prospects.

 

Risks relating to Legal and Compliance Matters

 

Government regulations and enforcement, and potential litigation, could have an adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) financial results.

 

As a global company, Rentokil Initial is subject to many laws and governmental regulations across all of the countries in which it conducts business, including laws and regulations involving marketing, antitrust, anti- bribery or anti-corruption, consumer protection, product liability, environmental, health and safety, intellectual property, data privacy or other matters, as well as potential litigation or administrative actions.

 

If Rentokil Initial (and with effect from Completion, the Combined Group) is unable to comply with all laws and regulations, it could negatively impact its reputation and business results. Rentokil Initial cannot provide assurance that its internal control policies and procedures, and ethics and compliance programme will always protect it from acts committed by Rentokil Initial’s (and with effect from Completion, the Combined Group’s) colleagues or agents. While it is Rentokil Initial’s policy and practice to comply with all legal and regulatory requirements applicable to its business, a finding that Rentokil Initial (and with effect from Completion, the Combined Group) is in violation of, or out of compliance with, applicable laws or regulations could subject it to civil remedies, including fines, damages, injunctions or product recalls, or criminal sanctions, any of which could adversely affect Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations financial condition and/or prospects. Even if a claim is unsuccessful, is without merit or is not fully pursued, the negative publicity surrounding such assertions regarding Rentokil Initial’s (and with effect from Completion, the Combined Group’s) products, processes or business practices could adversely affect Rentokil Initial’s reputation and brand image.

 

25 

 

 

In addition, new or revised laws or regulations may alter the environment in which Rentokil Initial (and with effect from Completion, the Combined Group) does business which could adversely impact its financial results. For example, new legislation or regulations may result in increased costs to Rentokil Initial (and with effect from Completion, the Combined Group), directly for its compliance, or indirectly to the extent suppliers increase prices of goods and services because of increased compliance costs, excise taxes or the reduced availability of raw materials.

 

Following Completion, approximately 60 per cent. of the Combined Group’s total revenues is expected to come from North America and therefore the Combined Group may face increased exposure to potential future claims or litigation given the more litigious nature of the US market, including increased exposure to injunctive relief or damages granted by courts in respect of such claims, and regardless of the outcome of any litigation or claims, the Combined Group may incur additional costs in defending against such claims following Completion. An unfavourable outcome or settlement in any litigation may have an adverse effect on the Combined Group’s business, reputation, results of operations financial condition and/or prospects.

 

Termite damage claims and lawsuits related thereto could increase the Combined Group’s legal expenses and may adversely impact its business, reputation, results of operations, financial condition and/or prospects.

 

Following Completion, the Combined Group’s business may become subject to a significant number of damage claims related to termite activity in homes/commercial premises, often accompanied by a termite damage warranty/guarantee. Currently Terminix is subject to a significant number of damage claims related to its termite control services and termite damage warranties/guarantees. Damage claims may include circumstances when a customer notifies the Combined Group that they have experienced damage and the Combined Group reaches an agreement to remediate that damage (a “Non-litigated Claim”); and circumstances when a customer directly initiates litigation or arbitration proceedings or when the Combined Group does not reach an agreement with a customer to remediate the damage and that customer initiates litigation or arbitration proceedings (a “Litigated Claim”).

 

Some plaintiffs bringing Litigated Claims may seek to demonstrate a pattern and practice of fraud in connection with Litigated Claims and may seek awards, in addition to repair costs, which include punitive damages and damages for mental anguish.

 

Terminix has experienced higher Non-litigated Claim activity concentrated in its branches in Mobile, Alabama and Gulf Shores, Alabama, which comprise all of its customers in the area, (collectively, the “Mobile Bay Area”) related to Formosan termites, an invasive species, which has driven higher Non-litigated Claims expense. In addition, since the beginning of 2017, Terminix has been served with an increasing number of Litigated Claims, again primarily concentrated in the Mobile Bay Area and related to Formosan termite activity, which has driven higher Litigated Claims expense. The Combined Group may face even further claims in the Mobile Bay Area or in other regions and, regardless of the outcome of any Non-Litigated Claims or Litigated Claims, the Combined Group may incur additional costs in defending against such claims following Completion. An unfavourable outcome or settlement in any Non-Litigated Claims or Litigated Claims may have an adverse effect on the Combined Group’s business, reputation, results of operations financial condition and/or prospects.

 

In April 2021, the State of Mississippi brought litigation against Terminix related to its termite inspection and treatment practices (the “Mississippi Litigation”). Terminix disputes the claims made in the Mississippi Litigation and intends to defend the matter vigorously. However, given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for success on the merits, it is not possible to predict with certainty the outcome of the Mississippi Litigation. The Combined Group intends to defend the Litigated Claims, including in particular the Mississippi Litigation, vigorously, and intends to take action to mitigate increasing claims costs; however, Rentokil Initial cannot give assurance that these mitigating actions will be effective in reducing claims or costs related thereto, nor can it give assurance that lawsuits or other proceedings related to termite damage claims will not materially affect its business, reputation, results of operations financial condition and/or prospects.

 

Following Completion, the Combined Group’s business may also become subject to state regulator claims related to trade practices, including termite renewal pricing, inspection and treatment practices (a “Regulator Claim”). Terminix has been subject to such claims in the past and has entered into settlements, for example with the Office of the Attorney General of the State of Alabama (the “AL AG”) and other Alabama state regulators. The Combined Group intends to defend any Regulator Claims and intends to take action to mitigate claims costs; however, Rentokil Initial plc cannot give assurance that these mitigating actions will be effective in reducing claims or costs related thereto, nor can it give assurance that lawsuits or other proceedings related to trade practices will not materially affect its business, reputation, results of operations financial condition and/ or prospects.

 

26 

 

 

Compliance with, or violation of, environmental, health and safety laws and regulations, including laws pertaining to the use of pesticides, could result in significant costs that adversely impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

The pest control industry is subject to various laws and regulations regarding environmental and health and safety matters. Among other things, these laws regulate the emission or discharge of materials into the environment, the use, storage, treatment, disposal, transportation and management of hazardous substances and wastes, the impact of chemicals (including fumigant gases), as well as pesticide and biocide products, on human health and safety and the environment, and the protection of the health and safety of its colleagues and the public.

 

These laws also impose liability for the costs of investigating and remediating, and damages resulting from, present and past releases of hazardous substances, including releases by former sites or by prior owners or operators of sites Rentokil Initial (and with effect from Completion, the Combined Group) currently owns or operates. These laws and regulations can result in costs associated with transporting and managing hazardous materials and waste disposal and plant site clean-up, fines, penalties, orders requiring corrective action or suspending or otherwise impacting Rentokil Initial’s (and with effect from Completion, the Combined Group’s) operations or other sanctions if it is found to be in violation of law, as well as modifications, disruptions or discontinuation of certain operations or types of operations including product recalls and reformulations. Changes in such laws and regulations, including among others, air, water, chemical and product regulations, could impact the sales of some of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) products or services. In addition to an increase in costs of manufacturing and delivering products, a change in production regulations or product regulations could result in interruptions to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business and potentially cause economic or consequential losses should it be unable to meet the demands of its customers for products.

 

Products used by Rentokil Initial (and with effect from Completion the Combined Group) containing pesticides generally must be registered with the relevant governmental agencies or authorities before they can be sold or applied. The failure to obtain, or the cancellation of, any such registration, or the withdrawal from the marketplace of such pesticides, could have an adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, the severity of which would depend on the products involved, whether other products could be substituted and whether competitors were similarly affected. The pesticides Rentokil Initial uses (and with effect from Completion, the Combined Group will use) are manufactured by independent third parties and are evaluated by the relevant governmental authorities or agencies as part of its ongoing exposure risk assessment. Any of these authorities or agencies may decide that a pesticide Rentokil Initial uses will be limited or will not be re-registered for use in the relevant jurisdiction. Rentokil Initial plc cannot predict the outcome or the severity of the effect of any particular authority’s or agency’s continuing evaluations. In addition, the use of certain pesticide products is regulated by various international, national, federal, state, provincial and local environmental and public health agencies and bodies. Some of Rentokil Initial’s (and with effect from Completion, the Combined Group’s) products may also become subject to bans or restrictions due to animal cruelty concerns. Given Rentokil Initial’s dispersed locations, distributed operations and numerous colleagues and franchise associates, it may be unable to prevent violations of these or other laws and regulations or misuse of products by colleagues or others from occurring. Even if Rentokil Initial (and with effect from Completion, the Combined Group) is able to comply with all such laws and regulations and obtain all necessary registrations and licenses, the pesticides or other products Rentokil Initial (and with effect from Completion, the Combined Group) applies or uses, or the manner in which it applies or uses them, could be alleged to cause injury to the environment, to people or to animals, or such products could be banned in certain circumstances. The laws and regulations may also apply to third-party vendors who are hired to repair or remediate property and who may fail to comply with environmental laws, health and safety laws and regulations and subject Rentokil Initial (and with effect from Completion, the Combined Group) to risk of legal exposure. The costs of compliance, non-compliance, investigation, remediation, combating reputational harm or defending civil or criminal proceedings, products liability, personal injury or other lawsuits could have a material adverse impact on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

International, national, federal, state, provincial and local agencies and bodies regulate the disposal, handling and storage of waste, discharges from Rentokil Initial’s (and with effect from Completion, the Combined Group’s) facilities and the investigation and clean-up of contaminated sites. Rentokil Initial (and with effect from Completion, the Combined Group) could incur significant costs, including investigation and clean-up costs, fines, penalties and civil or criminal sanctions and claims by third parties for property damage and personal injury, as a result of violations of, or liabilities under, such laws and regulations enforced by these agencies and bodies. Liability under laws and regulations can be imposed on a joint and several basis and without regard to fault or the legality of the underlying conduct. In addition, potentially significant expenditures could be required to comply with environmental, health and safety laws and regulations, including requirements that may be adopted or imposed in the future.

 

27 

 

 

A violation of health and safety or environmental laws or regulations relating to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) operations or a failure to comply with the instructions of relevant health and safety authorities, environmental agencies or internal policies could lead to, among other things, personal injury, negative publicity and reputational damage, fines, costly compliance procedures, litigation and withdrawal of licenses to operate. Such violations could, therefore, have an adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations financial condition and/or prospects.

 

Rentokil Initial is (and with effect from Completion, the Combined Group will be) required to comply with stringent, complex and evolving laws, rules, regulations and standards in many jurisdictions, as well as contractual obligations, relating to data privacy and security. Any actual or perceived failure to comply with these requirements could have a material adverse effect on its business.

 

Rentokil Initial is (and with effect from Completion, the Combined Group will be) required to comply with stringent, complex and evolving laws, rules, regulations and standards in many jurisdictions, as well as contractual obligations, relating to data privacy and security. Ensuring that its collection, use, transfer, storage and other processing of personal information complies with such requirements can increase operating costs, impact the development of new products or services, and reduce operational efficiency.

 

Internationally, virtually every jurisdiction in which Rentokil Initial operates has established its own data privacy and security legal framework with which it must comply. The cost of compliance, and the potential for fines and penalties for non-compliance, with data privacy and security laws and regulations may have a significant adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

If Rentokil Initial (and with effect from Completion, the Combined Group) is otherwise unable to transfer personal data between and among countries and regions in which it operates, it could affect the manner in which Rentokil Initial (and with effect from Completion, the Combined Group) provides its services, the geographical location or segregation of its relevant systems and operations, and could adversely affect its financial results. In addition, such procedures and controls, which Rentokil Initial operates (and with effect from Completion, the Combined Group will operate) to comply with relevant data privacy and security requirements in the jurisdictions it operates, may not be effective in ensuring compliance or preventing unauthorised transfers of personal data.

 

While Rentokil Initial strives to publish and prominently display privacy policies that are accurate, comprehensive, and compliant with applicable laws, rules regulations and industry standards, it cannot ensure that its privacy policies and other statements regarding its practices will be sufficient to protect it from claims, proceedings, liability or adverse publicity relating to data privacy and security. Although Rentokil Initial endeavours to comply with its privacy policies, Rentokil Initial (and with effect from Completion, the Combined Group) may at times fail to do so or be alleged to have failed to do so. If its public statements about its use, collection, disclosure and other processing of personal information, whether made through its privacy policies, information provided on its website, press statements or otherwise, are alleged to be deceptive, unfair or misrepresentative of its actual practices, Rentokil Initial (and with effect from Completion, the Combined Group) may be subject to potential government or legal investigation or action.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) compliance efforts are further complicated by the fact that data privacy and security laws, rules, regulations and standards around the world are rapidly evolving, may be subject to uncertain or inconsistent interpretations and enforcement, and may conflict among various jurisdictions. Any failure or perceived failure by Rentokil Initial (and with effect from Completion, the Combined Group) to comply with its privacy policies, or applicable data privacy and security laws, rules, regulations, standards or contractual obligations, or a security breach that leads to theft or other unauthorised access to, or unauthorised loss, destruction, use, modification, acquisition, disclosure, release or transfer of personal information, including customer, colleague, supplier or Rentokil Initial’s (and with effect from Completion, the Combined Group’s) proprietary, sensitive or confidential data, may result in requirements to modify or cease certain operations or practices, the expenditure of substantial costs, time and other resources, proceedings or actions against it, legal liability, governmental investigations, enforcement actions, claims, fines, judgments, awards, penalties, sanctions and costly litigation (including class actions). Any of the foregoing could lead to significant reputational damage, distract management and technical personnel, increase its costs of doing business, adversely affect the demand for its products and services, and ultimately result in the imposition of liability, any of which could have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, results of operations, financial condition and/or prospects.

 

28 

 

 

Changes in tax laws and unanticipated tax liabilities could materially and adversely affect the taxes Rentokil Initial pays (and with effect from Completion, the Combined Group will pay) and its profitability.

 

Rentokil Initial operates (and with effect from Completion, the Combined Group will operate) across many different tax jurisdictions and is subject to periodic tax audits which sometimes challenge the basis on which local tax has been calculated and/or withheld. Successful challenges by local tax authorities may have an adverse impact on profitability and cash flow. Unanticipated non-compliance with relevant tax legislation and/ or reporting requirements may result in material unprovided tax charges relating to prior years which could have a material adverse effect on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects.

 

Completion will result in Rentokil Initial becoming subject to US regulations which differ from the regulations to which Rentokil Initial is currently subject. Current and future US regulations could have an adverse effect on the results of operations, business and financial position of Rentokil Initial following Completion.

 

Following Completion, as a result of the registration of Rentokil Initial ADSs with the SEC, it is expected that Rentokil Initial plc will be subject to US securities laws, including the Sarbanes-Oxley Act of 2002 as a foreign private issuer. These regulations are different from the regulations to which Rentokil Initial is currently subject and therefore pose an increased compliance burden on Rentokil Initial and, particularly where supplemented by new regulations, could lead to higher costs and greater complexity, and potential reputational damage, regulatory sanctions or fines in connection with breach. Following Completion, the Combined Group could face increased exposure to other US federal, state and local laws and regulations (including tax laws), including the US Foreign Corrupt Practices Act of 1977, with respect to Rentokil Initial’s worldwide activities, as a result of its increased presence in the US. The enactment of unduly onerous and restrictive regulation may adversely affect Rentokil Initial plc’s share price and could have a material adverse effect on the results of operations, business and/or financial condition of Rentokil Initial.

 

As a “foreign private issuer”, Rentokil Initial plc would not be required to comply with all of the periodic disclosure and current reporting requirements of the 1934 Act and governance requirements of the NYSE that apply to a US domestic issuer. It is possible that Rentokil Initial plc could lose foreign private issuer status in the future. The determination of foreign private issuer status is made annually on the last business day of an issuer’s second fiscal quarter. As such, Rentokil Initial plc will re-assess its status as a foreign private issuer as of the last business day of the second fiscal quarter of 2023. Rentokil Initial plc would lose foreign private issuer status if more than 50 per cent. of its common shares are directly or indirectly held by residents of the United States and it fails to meet the additional requirements necessary to maintain its foreign private issuer status. These additional requirements relate to the citizenship and residency of its directors and officers, the location of its assets, and whether its business is principally administered in the United States. If Rentokil Initial plc ceases to be a foreign private issuer, it will be required to comply with reporting, disclosure, compliance and governance requirements that are applicable to US domestic issuers. This could result in significant additional legal, accounting and other expenses, as well as increased demands on management’s time.

 

Risks relating to financing

 

Adverse credit and financial market events and conditions could, among other things, impede access to or increase the cost of financing, which could have a material adverse impact on Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, results of operations, financial condition and/or prospects.

 

Disruptions in credit or financial markets could make it more difficult for Rentokil Initial (and with effect from Completion, the Combined Group) to obtain, or increase its cost of obtaining, financing for its operations or investments or to refinance its indebtedness, or cause lenders to depart from prior credit industry practice and not give technical or other waivers under applicable agreements governing such indebtedness to the extent Rentokil Initial (and with effect from Completion, the Combined Group) may seek them in the future, thereby causing it to be in default. There is no assurance that Rentokil Initial (and with effect from Completion, the Combined Group) will be able to refinance or extend the maturity of its indebtedness on favourable terms, or at all. Any inability to refinance Rentokil Initial’s (and with effect from Completion, the Combined Group’s) indebtedness on favourable terms could have a material adverse effect on its business, results of operations, financial condition and/or prospects.

 

29 

 

 

The agreements and instruments governing Rentokil Initial’s indebtedness contain restrictions and limitations that could impact Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to operate its business.

 

As of 30 June 2022, Rentokil Initial had aggregate outstanding indebtedness of £3.8 billion. The agreement governing the Revolving Facility, which is expected to increase to US$1 billion at Completion, the Bridge Facility and the New Senior Notes contain undertakings that, collectively, among other things, restrict Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to: (i) transfer or sell assets by way of a Class 1 transaction (as such term is defined in the Listing Rules); (ii) create security over its assets in excess of a certain amount; (iii) issue debt instruments at subsidiary level in excess of a certain amount; and (iv) issue trade instruments in excess of a certain amount.

 

Rentokil Initial’s (and with effect from Completion, the Combined Group’s) ability to comply with the undertakings and restrictions contained in each of the agreements governing the Revolving Facility, the Bridge Facility, the New Senior Notes and the instruments governing its other indebtedness may be affected by economic, financial and industry conditions beyond its control including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that would permit the applicable lenders or noteholders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. In any such case, Rentokil Initial (and with effect from Completion, the Combined Group) may be unable to borrow under the Revolving Facility and/or any such other facility and may not be able to repay the amounts due under such facility or its other outstanding indebtedness. This could have materially adverse consequences to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business, reputation, results of operations, financial condition and/or prospects and could cause it to become bankrupt or insolvent.

 

A lowering or withdrawal of the ratings, outlook or watch assigned to its debt securities by rating agencies may increase Rentokil Initial’s (and with effect from Completion, the Combined Group’s) future borrowing costs and reduce its access to capital.

 

Rentokil Initial’s indebtedness has primarily investment grade ratings, and any rating, outlook or watch assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgement, current or future circumstances change relating to the basis of the rating, outlook or watch, such as adverse changes to Rentokil Initial’s (and with effect from Completion, the Combined Group’s) business. Any future lowering of its ratings, outlook or watch likely would make it more difficult or more expensive for Rentokil Initial (and with effect from Completion, the Combined Group) to obtain debt financing.

 

Rentokil Initial (and with effect from Completion, the Combined Group) may be able to incur substantially more indebtedness. This could further exacerbate the risks associated with Rentokil Initial’s indebtedness.

 

Rentokil Initial has incurred approximately US$2.0 billion of additional debt in connection with the Transaction and may incur up to a further US$700 million of additional debt in connection with the Transaction. Rentokil Initial may incur substantial additional indebtedness in the future (the terms of the instruments governing Rentokil Initial’s indebtedness would not fully prohibit it from doing so). If new indebtedness is added to Rentokil Initial’s current indebtedness levels, the related risks it faces would increase, and it may not be able to meet all of its debt obligations.

 

Risks related to the Rentokil Initial Shares and Rentokil Initial ADSs

 

Current Rentokil Initial Shareholders will have a reduced ownership and voting interest after the Transaction.

 

Upon Completion, Rentokil Initial plc expects to issue approximately 645 million New Rentokil Initial Shares, represented by approximately 129 million New Rentokil Initial ADSs to Terminix Shareholders pursuant to the Merger Agreement. As a result, it is expected that, immediately after Completion, existing Rentokil Initial Shareholders will own approximately 74 per cent. of the outstanding Rentokil Initial Shares and former Terminix Shareholders who receive New Rentokil Initial ADSs in the Transaction will own approximately 26 per cent. of the outstanding Rentokil Initial Shares. In addition, Rentokil Initial Shares may be issued from time to time following Completion to holders of Terminix Holdings equity awards on the terms set forth in the Merger Agreement.

 

30 

 

 

Resales of Rentokil Initial Shares and Rentokil Initial ADSs following the Transaction may cause the market value of Rentokil Initial Shares to decline.

 

Rentokil Initial plc expects that it will issue up to approximately 645 million Rentokil Initial Shares at Completion. The issuance of New Rentokil Initial Shares and the New Rentokil Initial ADSs by which those Rentokil Initial Shares are represented, and the sale of Rentokil Initial Shares and/or Rentokil Initial ADSs from time to time could have the effect of depressing the market value for Rentokil Initial Shares and Rentokil Initial ADSs as a consequence of the Transaction. The increase in the number of Rentokil Initial Shares or Rentokil Initial ADSs may lead to sales of such Rentokil Initial Shares or Rentokil Initial ADSs or the perception that such sales may occur, either of which may adversely affect the market for, and the market value of, Rentokil Initial Shares or Rentokil Initial ADSs.

 

The market value of Rentokil Initial Shares and Rentokil Initial ADSs may decline as a result of the Transaction.

 

The market value of Rentokil Initial Shares and Rentokil Initial ADSs may decline as a result of the Transaction if, among other things, the Combined Group is unable to achieve the expected growth in revenues and earnings, or if the operational cost savings estimates in connection with the integration of Rentokil Initial’s and Terminix’s businesses are not realised or if the transaction costs related to the Transaction are greater than expected. The market value also may decline if the Combined Group does not achieve the perceived benefits of the Transaction as rapidly or to the extent anticipated by the market or if the effect of the Transaction on the Combined Group’s business, results of operations, financial condition and/or prospects is not consistent with the expectations of financial or industry analysts.

 

The share price of publicly traded companies can be highly volatile and Rentokil Initial plc’s share price may fluctuate.

 

Following Completion, the value of any investment in Rentokil Initial Shares may increase or decrease abruptly which may prevent Rentokil Initial Shareholders from being able to sell their Rentokil Initial Shares or Rentokil Initial ADSs at or above the price they paid for them. The price of the Rentokil Initial Shares and Rentokil Initial ADSs may fall in response to market perception of the Combined Group and various other events as described more fully in this Part I (Risk Factors). Any of these factors, some of which will be outside of the Combined Groups’ control, may impact the price and performance of the Rentokil Initial Shares and Rentokil Initial ADSs.

 

As Rentokil Initial plc is a holding company and substantially all of its operations will be conducted through its subsidiaries, its ability to pay dividends on the Rentokil Initial Shares depends on its ability to obtain cash dividends or other cash payments or to obtain loans from such entities.

 

Rentokil Initial plc’s ability to pay dividends is limited under English company law, which limits a company to only pay cash dividends to the extent it has distributable reserves and cash available for this purpose. Rentokil Initial plc conducts substantially all of its operations through its subsidiaries and such entities will generate substantially all of its operating income and cash flow. As a holding company, Rentokil Initial plc’s ability to pay dividends in the future is affected by a number of factors, principally its ability to receive sufficient dividends from its subsidiaries. The ability of such entities to make dividend payments to Rentokil Initial plc depends largely on their financial condition and ability to generate profits. In addition, because Rentokil Initial plc’s subsidiaries are, and the Combined Group’s subsidiaries will be, separate and distinct legal entities, they will have, to the extent they have not agreed otherwise by entering into a separate agreement with Rentokil Initial plc, no obligation to pay any dividends or to lend or advance to Rentokil Initial plc funds and may be restricted from doing so by contract, including under financing arrangements, charter provisions, other shareholders or the applicable laws and regulations of the various countries in which they operate. Additionally, claims of the creditors of Rentokil Initial plc’s subsidiaries have priority over any claims that Rentokil Initial plc may have with respect to the assets of its subsidiaries. There can be no assurance that, in the long- term, the Combined Group’s subsidiaries will generate sufficient profits and cash flows, or otherwise prove willing or able, to pay dividends or lend or advance to Rentokil Initial plc sufficient funds to enable it to meet its obligations and pay interest, expenses and dividends, if any, on the Rentokil Initial Shares. The inability of one or more of these entities to pay dividends or lend or advance funds to Rentokil Initial plc could, in the long-term, have a material adverse effect on its business, reputation, results of operations, financial condition and/or prospects.

 

31 

 

 

PART II

IMPORTANT NOTICES

 

Forward-looking statements

 

This document contains forward-looking statements. Forward-looking statements can sometimes be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “shall,” “should,” “would,” “could,” “potential,” “seeks,” “aims,” “projects,” “predicts,” “is optimistic,” “intends,” “plans,” “estimates,” “targets,” “anticipates,” “continues” or other comparable terms or negatives of these terms, but not all forward- looking statements include such identifying words. Forward-looking statements are based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Rentokil Initial plc can give no assurance that such plans, estimates or expectations will be achieved and therefore, actual results may differ materially from any plans, estimates or expectations in such forward-looking statements. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among other things: the risks set out in Part I (Risk Factors) of this document; a condition to the Completion may not be satisfied; the occurrence of any event that can give rise to termination of the Transaction; Rentokil Initial is unable to achieve the synergies and value creation contemplated by the Transaction; Rentokil Initial is unable to promptly and effectively integrate Terminix’s businesses; management’s time and attention is diverted on transaction related issues; disruption from the Transaction makes it more difficult to maintain business, contractual and operational relationships; the credit ratings of Rentokil Initial decline following the Transaction; legal proceedings are instituted against Rentokil Initial or Terminix; Rentokil Initial or Terminix is unable to retain or hire key personnel; the announcement or the consummation of the Transaction has a negative effect on the market price of the Rentokil Initial Shares or Terminix Shares or on Rentokil Initial’s or Terminix’s operating results; evolving legal, regulatory and tax regimes; changes in economic, financial, political and regulatory conditions, in the United Kingdom, the United States and elsewhere, and other factors that contribute to uncertainty and volatility, natural and man-made disasters, civil unrest, pandemics (e.g., the COVID-19 pandemic), the ongoing war in Ukraine and the subsequent institution and extension of sanctions against various Russian organisations, companies and individuals, geopolitical uncertainty, and conditions that may result from legislative, regulatory, trade and policy changes associated with the current or subsequent US or UK administration; the ability of Rentokil Initial or Terminix to successfully recover from a disaster or other business continuity problem due to a hurricane, flood, earthquake, terrorist attack, war, pandemic, security breach, cyber-attack, power loss, telecommunications failure or other natural or man-made event, including the ability to function remotely during long-term disruptions such as the COVID-19 pandemic; the impact of public health crises, such as pandemics (including the COVID 19 pandemic) and epidemics and any related company or governmental policies and actions to protect the health and safety of individuals or governmental policies or actions to maintain the functioning of national or global economies and markets, including any quarantine, “shelter in place,” “stay at home,” workforce reduction, social distancing, shut down or similar actions and policies; actions by third parties, including government agencies; the risk that disruptions from the Transaction will harm Rentokil Initial’s or Terminix’s business, including current plans and operations; certain restrictions during the pendency of the acquisition that may impact Rentokil Initial’s or Terminix’s ability to pursue certain business opportunities or strategic transactions; and Rentokil Initial’s or Terminix’s ability to meet expectations regarding the accounting and tax treatments of the Transaction. Unlisted factors may present significant additional obstacles to the realisation of forward-looking statements.

 

Neither Rentokil Initial nor any of its associates or directors, officers or advisers provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this document will actually occur. Investors are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with their legal or regulatory obligations (including under the Listing Rules, the Disclosure Guidance and Transparency Rules, the Prospectus Regulation Rules of the FCA and the Market Abuse Regulation), Rentokil Initial is under no obligation, and Rentokil Initial expressly disclaims any intention or obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Nothing in this section or anywhere else in this document should be construed as qualifying the statement in respect of the Combined Group’s working capital set out in paragraph 19 of Part XIII (Additional Information) of this document.

 

32 

 

 

No profit forecasts or estimates

 

Unless otherwise stated, no statement in this document, or incorporated by reference into this document, is intended to be or is to be construed as a profit forecast or estimate for any period and no other statement in this document should be interpreted to mean that earnings or earnings per share for Rentokil Initial plc or Terminix Holdings for the current or future financial years, or those of the Combined Group, would necessarily match or exceed the historical published earnings or core earnings per share for Rentokil Initial plc or Terminix Holdings.

 

Quantified synergy benefits

 

Statements of identified synergies and estimated costs savings relate to future actions and circumstances which by their nature involve risks, uncertainties and contingencies. As a consequence, the identified synergies and estimated cost savings referred to in this document may not be achieved, may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated.

 

Rounding

 

Certain figures included in this document have been subjected to rounding adjustments. Accordingly, figures shown in the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

 

Presentation of financial information

 

Unless otherwise stated:

 

(a)financial information relating to Rentokil Initial has been extracted without material adjustment from the unaudited interim consolidated financial statements of Rentokil Initial for the six months ended 30 June 2022 and 30 June 2021 and the audited consolidated financial statements of Rentokil Initial for the financial years ended 31 December 2021, 31 December 2020 and 31 December 2019, each of which has been incorporated by reference into this document as described in Part XIV (Documentation Incorporated by Reference) of this document;

 

(b)financial information relating to Terminix has been extracted without material adjustment from the unaudited interim consolidated financial statements of Terminix for the six months ended 30 June 2022 and 30 June 2021 and the audited consolidated financial statements of Terminix for the financial years ended 31 December 2021, 31 December 2020 and 31 December 2019, each of which is included in Part XI (Historical Financial Information on Terminix) of this document; and

 

(c)all prices quoted for Rentokil Initial Shares are closing prices in sterling as at the date specified as provided by the London Stock Exchange.

 

Unless otherwise indicated, financial information in this document relating to Rentokil Initial has been prepared in accordance with IFRS and financial information relating to Terminix has been prepared in accordance with US GAAP.

 

2020 Unaudited Restated Comparative Information

 

In the 2021 Accounts, Rentokil Initial restated the comparative information as at and for the year ended 31 December 2020 (the “2020 Unaudited Restated Comparative Information”) to adjust certain line items previously presented in the 2020 Accounts, in order to align with the presentation of the 2021 financial statements. As described in the Financial Review on page 149 of the 2021 Accounts, incorporated by reference herein, the following restatements were made:

 

Balances for the French virtual pooling facility which did not meet the grossing up requirements were restated to a net presentation.

 

Trade and other receivables and bank and other short-term borrowings reflected the reinstatement of a factoring arrangement in France which had previously been considered to meet the requirements for de- recognition.

 

Revenues from the North America Target distribution business were reduced by £20.2 million (at AER) following a change in revenue recognition in 2021 (£22.8 million reduction at AER). Over the last three years, the Target Specialty Products business in North America has grown significantly and in 2021 Rentokil Initial completed a review of the revenue recognition policy within this revenue stream. The region has a limited number of suppliers for whom Rentokil Initial sells products to end customers on a consignment stock basis and as a result of the review, Rentokil Initial revised its judgement such that it consider itself to be agents of these suppliers rather than principal and has therefore recognised only the commission revenues earned rather than revenues charged to end customers. The changes in revenue had no impact on reported profits in 2020 or in 2021 and, therefore, improved the 2021 margin of the North America business by 0.2 per cent. and Rentokil Initial as a whole by 0.1 per cent.

 

33 

 

 

In the Consolidated Statement of Changes in Equity, the 2020 presentation of ‘Net exchange adjustments offset in reserves’ was restated as separate lines for ‘Net exchange adjustments offset in reserves’ and ‘Net gain/loss on net investment hedge’.

 

In the Consolidated Cash Flow Statement, the net change from investments in term deposits of £170.5 million was restated to correct the classification from financing activities to investing activities.

 

The financial information included in this document for the year ended 31 December 2020 is derived from either the 2020 Accounts or the 2020 Unaudited Restated Comparative Information, as indicated.

 

Rentokil Initial has not restated the financial information for the year ended 31 December 2019 to reflect these same adjustments and as such, the financial information for 2019 included in this document, as extracted from the 2019 Accounts, is not directly comparable to the financial information for 2021 and the 2020 Unaudited Restated Comparative Information.

 

Pro forma financial information

 

In this document, any reference to “pro forma” financial information is to information which has been extracted without material adjustments from the Unaudited Pro Forma Financial Information contained in Part XII (Unaudited Pro Forma Financial Information for the Combined Group) of this document. The Unaudited Pro Forma Financial Information contained in Part XII (Unaudited Pro Forma Financial Information for the Combined Group) of this document is based on the historical financial information of Terminix contained in Part XI (Historical Financial Information on Terminix) and the financial information of Rentokil Initial incorporated by reference into this document as described in Part XIV (Documentation Incorporated by Reference) of this document, respectively. The unaudited pro forma income statement and statement of net assets are presented in GBP sterling. The Unaudited Pro Forma Financial Information has been prepared to illustrate the effect on (i) the income statement of Rentokil Initial for the six months ended 30 June 2022 as if the Transaction had taken place on 1 January 2021; (ii) the income statement of Rentokil Initial for the year ended 31 December 2021 as if the Transaction had taken place on 1 January 2021; and (iii) the statement of net assets of Rentokil Initial as if the Transaction had taken place on 30 June 2022.

 

The unaudited pro forma income statement and statement of net assets have been prepared for illustrative purposes only and, because of their nature, address a hypothetical situation and do not, therefore, represent Rentokil Initial’s or the Combined Group’s actual financial position or results. The pro forma financial information has been prepared under IFRS and on the basis set out in Part XII (Unaudited Pro Forma Financial Information for the Combined Group) of this document and in accordance with Item 13.3.3 R of the Listing Rules and in a manner consistent with the accounting policies adopted by Rentokil Initial in preparing the audited consolidated financial statements for the year ended 31 December 2021.

 

In addition to the matters noted above, the Unaudited Pro Forma Financial Information does not reflect the effect of anticipated synergies and efficiencies or the related costs of achieving these synergies that may result from the Transaction.

 

Non-GAAP measures

 

Certain operating and financial performance metrics contained in this document have not been audited and this document contains some financial measures which are not within the scope of IFRS or US GAAP (“Non- GAAP”) and which are used by the Company and Terminix Holdings, respectively, to assess the financial performance of their businesses. These measures include, among others, “Ongoing Revenue”, “Ongoing Operating Profit”, “Organic Revenue”, “Adjusted EPS”, “Adjusted EBITDA” and “Free Cash Flow” are included because the Company or Terminix Holdings believe that they are important supplemental measures of operating performance. These are not measures of operating performance derived from IFRS or US GAAP and should not be considered as substitutes for Rentokil Initial’s or Terminix’s financial results based on IFRS or US GAAP, as the case may be. In addition, these measures are not intended to be an indication of the Company’s ability to fund Rentokil Initial’s or, following Completion, the Combined Group’s cash requirements. Consideration should be given to the types of events and transactions that are excluded from the calculation of the measures. These Non-GAAP measures are not uniformly defined by all companies, and therefore comparability may be limited. Non-GAAP financial measures are used by the Company to make operating decisions because they facilitate internal comparisons of Rentokil Initial’s performance to historical results and to competitors’ results. The Directors also believe that they are useful in that they provide investors with alternative means to evaluate the underlying performance and position of Rentokil Initial and the Combined Group.

 

34 

 

 

A reconciliation of Non-GAAP measures in relation to Rentokil Initial is included in the audited consolidated financial statements of Rentokil Initial for the financial years ended 31 December 2021, 31 December 2020 and 31 December 2019, and in the unaudited consolidated interim financial statements of Rentokil Initial for the six months ended 30 June 2022 and 30 June 2021, each of which has been incorporated by reference into this document as described in Part XIV (Documentation Incorporated by Reference) of this document.

 

A reconciliation of the following Non-GAAP measures in relation to Terminix Holdings is set out below.

 

The following table presents reconciliations of net income to Adjusted EBITDA:

 

    Six months ended
30 June
2022
 
    (US$m)  
Net Income     2  
Depreciation and amortization expense     27  
Acquisition-related costs     1  
Non-cash stock-based compensation expense     5  
Restructuring and other charges     15  
Loss on sale of international subsidiaries     41  
Provision for income taxes     18  
Interest expense     11  
Adjusted EBITDA     120  

 

Currencies

 

Unless otherwise indicated, all references in this document to “sterling”, “GBP”, “£”, “pence” or “p” are to the lawful currency of the United Kingdom; references to “EUR”, “Euro” or “€” are to the official currency of the Eurozone; and references to “US Dollars”, “USD” or “US$” are to the lawful currency of the US.

 

Market and industry information

 

Market data and certain industry forecasts used in this document were obtained from internal surveys, reports and studies, where appropriate, as well as market research, publicly available information and industry publications. Where third party information has been used in this document, the source of such information has been identified. The Company confirms that all third party information has been accurately reproduced and, as far as the Company is aware and able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.

 

Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy or completeness of such information is not guaranteed. Similarly, internal surveys, reports and studies and market research, while believed by the Company to be reliable and accurately extracted by the Company for the purposes of this document, have not been independently verified and the Company makes no representation as to the accuracy of such information. See the section headed “Forward- looking statements” in this “Important Notices” section on page 33.

 

Publication on website and availability of hard copies

 

A copy of this document and all information incorporated into this document by reference to another source, will be made available on Rentokil Initial plc’s website at: https://www.rentokil-initial.com/generalmeeting.

 

If you have received notification of this document in electronic form, you may request a hard copy of this document and/or any information incorporated into this document by reference to another source by contacting Rentokil Initial plc’s registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or, between 8.30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays), on 0333 207 6581 from within the UK or on +44 (0)121 415 0077 if calling from outside the UK (calls from outside the UK will be charged at the applicable international rate), with your full name and the full address to which the hard copy may be sent (calls may be recorded and monitored for training and security purposes). You may also request that all future documents, announcements and information to be sent to you in relation to the Transaction should be in hard copy form.

 

35 

 

 

Incorporation by reference

 

Certain information in relation to Rentokil Initial is incorporated by reference in this document, as set out in Part XIV (Documentation Incorporated by Reference).

 

No incorporation of website information

 

The contents of Rentokil Initial’s and Terminix’s websites or any hyperlinks accessible from those websites do not form part of this document and investors should not rely on them.

 

Defined terms

 

Certain terms used in this document are defined and certain technical and other terms used in this document are set out in Part XV (Definitions) of this document.

 

Unless otherwise indicated, all references in this document to time of day are references to BST time.

 

All references to legislation in this document are to the legislation of England and Wales unless the contrary is indicated. Any reference to any provision of any legislation or regulation shall include any amendment, modification, re-enactment or extension thereof.

 

Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.

 

36 

 

 

PART III

TO VOTE ON THE TRANSACTION AND ACTION TO BE TAKEN

 

To vote on the Transaction

 

This page should be read in conjunction with the rest of the document, in particular, the Notice of General Meeting included in Part XVI (Notice of General Meeting) of this document.

 

While it is currently anticipated that there will be no restrictions on social contact or meeting format at the time of the Rentokil Initial General Meeting, Rentokil Initial Shareholders should carefully consider whether or not it is appropriate to attend the Rentokil Initial General Meeting. Rentokil Initial Shareholders who wish to attend, should undertake a lateral flow test on the morning of the Rentokil Initial General Meeting and that any Rentokil Initial Shareholder who is experiencing any COVID-19 symptoms or has recently been in contact with anyone who has tested positive should not attend. Subject to conditions on the day of the meeting, Rentokil Initial Shareholders may be required to wear face masks.

 

In light of the potential for government restrictions relating to COVID-19 to change at short notice, Rentokil Initial Shareholders are strongly encouraged to consider submitting the Form of Proxy online or by post and to appoint the Chair of the Rentokil Initial General Meeting as their proxy to ensure their vote is counted even if attendance at the meeting is restricted or the shareholder is unable to attend. This means that the Chair of the Rentokil Initial General Meeting will be able to vote on their behalf, and in accordance with their instructions, at the Rentokil Initial General Meeting. You should complete, sign and return the accompanying Form of Proxy for use at the Rentokil Initial General Meeting, so as to be received by no later than 1.30 p.m. on 4 October 2022. Unless the Form of Proxy is returned by the time mentioned in the instructions printed on it, it will be invalid.

 

Electronic Proxy Appointment (“EPA”) is also available for the Rentokil Initial General Meeting. To use this facility, you must visit http://www.sharevote.co.uk and follow the instructions provided, or, if you have an account with Equiniti, you must visit https://www.shareview.co.uk and log on to your portfolio using your usual user ID and password. Once logged in, click “View” on the “My Investments” page, click on the link to vote and then follow the on-screen instructions. The Voting ID, Task ID & Shareholder Reference Number shown on the Form of Proxy will be required to complete the EPA procedure. EPA will not be valid if received later than 48 hours before the Rentokil Initial General Meeting or, in the case of any adjournment, later than 48 hours before the time fixed for the adjourned meeting and will not be accepted if found to contain a computer virus. Alternatively, if you are a user of the CREST system, you may appoint a proxy by following the procedures described in the CREST Manual available at http://www.euroclear.com. The CREST message must be received by the issuer’s agent RA19 by 1.30 p.m. on 4 October 2022.

 

If you require assistance, please telephone Equiniti on 0333 207 6581 from within the UK or on +44 (0)121 415 0077 (from outside the UK) between 8.30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays). Calls to the helpline from outside the UK will be charged at applicable international rates. Calls will be recorded and monitored for security and training purposes.

 

Please note that, for legal reasons, Equiniti cannot provide advice on the merits of the Transaction or give any legal, tax or financial advice.

 

Hard copies of any information incorporated into this document by reference to another source, sent to persons in electronic form or by means of being published on Rentokil Initial plc’s website, and all future documents, announcements and information required to be sent to persons in relation to the Transaction may be requested to be received by Rentokil Initial Shareholders in hard copy form by writing to Equiniti at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or by calling Equiniti at the numbers provided above. A hard copy of any such documents will not be sent unless so requested.

 

Action to be taken

 

For the reasons set out in this document, the Board unanimously recommends that Rentokil Initial Shareholders vote in favour of the Resolutions relating to the Transaction to be proposed at the Rentokil Initial General Meeting, as the Directors intend to do in respect of their own beneficial holdings of Rentokil Initial Shares, and that you take the action described below.

 

37 

 

 

The Rentokil Initial General Meeting will be held at the offices of Freshfields Bruckhaus Deringer LLP at 100 Bishopsgate, London, EC2P 2SR, UK at 1.30 p.m. on 6 October 2022. The Transaction requires approval of Rentokil Initial Shareholders at the Rentokil Initial General Meeting.

 

1.The documents

 

If you received a Form of Proxy, you are requested to complete and return your form as soon as possible. If you have registered to appoint a proxy electronically, and have thus not received a Form of Proxy, you should follow the instructions in the email you received notifying you of the availability of this document.

 

2.Voting at the Rentokil Initial General Meeting

 

The Transaction will require approval by Rentokil Initial Shareholders at the Rentokil Initial General Meeting to be held at the offices of Freshfields Bruckhaus Deringer LLP at 100 Bishopsgate, London, EC2P 2SR, UK at 1.30 p.m. on 6 October 2022. The Transaction constitutes a Class 1 transaction for Rentokil Initial plc under the Listing Rules and will require the passing by Rentokil Initial Shareholders of the Resolutions to be proposed at the Rentokil Initial General Meeting.

 

In light of the potential for government restrictions relating to COVID-19 to change at short notice, Rentokil Initial Shareholders are strongly encouraged to consider submitting the Form of Proxy online or by post and to appoint the Chair of the Rentokil Initial General Meeting as their proxy to ensure their vote is counted even if attendance at the meeting is restricted or the shareholder is unable to attend. Voting by proxy ahead of the meeting will not prevent any Rentokil Initial Shareholder from attending and voting at the meeting.

 

2.1Online appointment of proxies

 

Rentokil Initial Shareholders entitled to vote at the Rentokil Initial General Meeting may appoint a proxy electronically by logging on to the following website: http://www.sharevote.co.uk and following the instructions provided. Alternatively, if you have an account with Equiniti, log on to your portfolio at https:// www.shareview.co.uk using your usual user ID and password and clicking “View” on the “My Investments” page, then click on the link to vote and follow the on-screen instructions. The Voting ID, Task ID & Shareholder Reference Number shown on the Form of Proxy will be required to complete the procedure. For an electronic proxy appointment to be valid, the appointment must be received by Rentokil Initial plc’s registrar, not less than 48 hours before the time fixed for the Rentokil Initial General Meeting. Full details of the procedure to be followed to appoint a proxy electronically are given on the website.

 

2.2Electronic appointment of proxies through CREST

 

To appoint a proxy or to give or amend an instruction to a previously appointed proxy via the CREST system, by following the procedures described in the CREST Manual available at http://www.euroclear.com, the CREST message must be received by the issuer’s agent RA19 not less than 48 hours before the time fixed for the Rentokil Initial General Meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST applications host) from which the issuer’s agent is able to retrieve the message. After this time any change of instructions to a proxy appointed through CREST should be communicated to the proxy by other means. CREST personal members or other CREST sponsored members, and those CREST members who have appointed voting service provider(s), should contact their CREST sponsor or voting service provider(s) for assistance with appointing proxies via CREST. For further information on CREST procedures, limitations and system timings please refer to the CREST Manual. Rentokil Initial plc may treat as invalid a proxy appointment sent by CREST in the circumstances set out in the CREST Regulations.

 

2.3Sending Forms of Proxy by post

 

Please complete and sign the enclosed Form of Proxy in accordance with the instructions printed on it and return it by post in the envelope provided to Rentokil Initial plc’s registrar, Equiniti at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom so as to be received as soon as possible and in any event not later than 1.30 p.m. on 4 October 2022.

 

The Form of Proxy must be returned by the time mentioned above, or it will be invalid.

 

Rentokil Initial Shareholders are entitled to appoint a proxy in respect of some or all of their Rentokil Initial Shares and may also appoint more than one proxy, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by such holder. Rentokil Initial Shareholders who wish to appoint more than one proxy in respect of their holding of Rentokil Initial Shares should contact Equiniti for further Forms of Proxy.

 

2.4Helpline

 

If you have any questions about this document or the Rentokil Initial General Meeting, or are in any doubt as to how to complete the Form of Proxy, please contact Rentokil Initial plc’s registrars, Equiniti, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA, United Kingdom or call on 0333 207 6581 or, if telephoning from outside the UK, on +44 (0)121 415 0077, between 8:30 a.m. and 5.30 p.m. (BST), Monday to Friday (excluding English and Welsh public holidays). Calls to the helpline from outside the UK will be charged at applicable international rates. Calls may be recorded and monitored for security and training purposes. Please note that, for legal reasons, the helpline cannot provide advice on the merits of the Transaction or give any legal, tax or financial advice.

 

38 

 

 

PART IV

 

EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND INDICATIVE TRANSACTION STATISTICS

 

All times shown are BST times unless otherwise stated. All dates and times are based on the current expectations of Rentokil Initial and are subject to change, which will depend, among other things, on the date on which the Conditions to the Transaction are satisfied or, where applicable, waived. If any of the dates and/or times in this expected timetable change, the revised dates and/or times will be notified to Rentokil Initial Shareholders by announcement through the Regulatory Information Service of the London Stock Exchange.

 

Event  Expected time/date
    
Publication of this document  7 September 2022
    
Latest time and date for lodging Forms of Proxy/ CREST Proxy Instructions for the Rentokil Initial General Meeting  1.30 p.m. (BST) on 4 October 2022(1)(2)
    
Voting Record Time  6.30 p.m. (BST) on 4 October 2022(3)
    
Rentokil Initial General Meeting  1.30 p.m. (BST) on 6 October 2022
    
Terminix Special Meeting  8.30 a.m. (EDT) on 6 October 2022
    
Completion and issuance of New Rentokil Initial Shares and New Rentokil Initial ADSs  12 October 2022(4)
    
Long Stop Date  31 December 2022(5)

 

The Rentokil Initial General Meeting will be held at the offices of Freshfields Bruckhaus Deringer LLP at 100 Bishopsgate, London, EC2P 2SR, UK.

 

 

Notes:

 

(1)In order to be valid, the voting instructions must be lodged no later than 1.30 p.m. (BST) on 4 October 2022 (or, if the Rentokil Initial General Meeting is adjourned, before such time as is announced before the adjourned meeting). Please see “Action to be taken” on pages 40-42 of this document.

 

(2)In order to be valid, the Form of Proxy must be lodged no later than 1.30 p.m. (BST) on 4 October 2022. Please see “Action to be taken” on pages 40-42 of this document.

 

(3)If the Rentokil Initial General Meeting is adjourned, the Voting Record Time for the adjourned meeting will be 6.30 p.m. (BST) on the date which is two business days before the date set for such adjourned meeting.

 

(4)Assuming the satisfaction or waiver of all Conditions (including approval of the Transaction by Rentokil Initial Shareholders and approval of the Transaction by Terminix Shareholders), Completion is expected to take place on 12 October 2022.

 

(5)Subject to an extension (to the Extended Long Stop Date) if, on the Long Stop Date, antitrust-related Conditions are not satisfied but all other Conditions (other Conditions that can only be satisfied immediately prior to Completion) have been satisfied or waived.

 

39 

 

 

INDICATIVE TRANSACTION STATISTICS

 

Number of existing Rentokil Initial Shares (as at the Latest Practicable Date)(1)  1,863,832,965
    
Number of New Rentokil Initial Shares to be issued in the Transaction  up to 645,386,010
    
Number of Rentokil Initial Shares immediately following Completion(1)(2)  2,509,218,975
    
New Rentokil Initial Shares as a percentage of the enlarged issued share capital(1)(2)   26 per cent.
    
ISIN  GB00B082RF11
    
SEDOL  B082RF1

 

 

Notes:

 

(1)Number of Rentokil Initial Shares as at the Latest Practicable Date (including shares owned by employee share trusts).

 

(2)Assumes that no New Rentokil Initial Shares are issued as a result of (1) the exercise of any options or (2) awards vesting under the Rentokil Initial plc employee share schemes between the Latest Practicable Date and Completion. Based on the number of Rentokil Initial Shares in issue as at the Latest Practicable Date and that 645,386,010 New Rentokil Initial Shares are issued in connection with the Transaction.

 

40 

 

 

PART V

 

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS

 

Directors of the Company:   Richard Solomons   Chairman
    Andy Ransom   Chief Executive
    Stuart Ingall-Tombs   Chief Financial Officer
    John Pettigrew   Senior Independent Director
    Sarosh Mistry   Non-Executive Director
    Julie Southern   Non-Executive Director
    Cathy Turner   Non-Executive Director
    Linda Yueh   Non-Executive Director
         
Company Secretary of the Company:   Catherine Stead    
         
Registered Office of the Company:   Compass House
Manor Royal,Crawley
West Sussex, RH10 9PY
United Kingdom
   
         
Sponsor and Financial Adviser to the Company:   Barclays Bank PLC
1 Churchill Place
London E14 5HP
United Kingdom
   
         
Financial Adviser to the Company:   Goldman Sachs International
25 Shoe Lane
London EC4A 4AU
United Kingdom
   
         
Legal Advisers to the Company as to English law:   Freshfields Bruckhaus Deringer LLP
100 Bishopsgate
London EC2P 2SR
United Kingdom
   
         
Legal Advisers to the Company as to US law:   Davis Polk & Wardwell LLP
450 Lexington Ave
New York NY 10017
United States
   
         
Legal Advisers to the Sponsor:   Simmons & Simmons LLP
CityPoint, One Ropemaker Street
London EC2Y 9SS
United Kingdom
   
         
Reporting Accountants to the Company:   PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
United Kingdom
   
         
Auditors to the Company:   PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
United Kingdom
   
         
Company Registrars:   Equiniti Limited
Aspect House, Spencer Road, Lancing
West Sussex BN99 6DA
United Kingdom
   

 

41 

 

 

PART VI

 

LETTER FROM THE CHAIRMAN OF RENTOKIL INITIAL

 

Directors

Richard Solomons (Chairman)

Andy Ransom (Chief Executive)

Stuart Ingall-Tombs (Chief Financial Officer)

John Pettigrew (Senior Independent Director)

Sarosh Mistry (Non-Executive Director)

Julie Southern (Non-Executive Director)

Cathy Turner (Non-Executive Director)

Linda Yueh (Non-Executive Director)

 

Registered Office

Compass House

Manor Royal

Crawley

West Sussex

RH10 9PY

UK

 

 

7 September 2022

 

To all Rentokil Initial Shareholders, and persons with information rights.

 

Dear Shareholder

 

PROPOSED ACQUISITION OF TERMINIX GLOBAL HOLDINGS, INC. BY RENTOKIL INITIAL PLC

 

1.Introduction

 

On 14 December 2021, Rentokil Initial plc announced that it and Terminix Holdings had reached an agreement for the acquisition, by a subsidiary of Rentokil Initial plc, of the entire common stock of Terminix Holdings (the “Terminix Shares”), which will be effected through a statutory merger under the laws of Delaware.

 

The Transaction will combine two leading pest control businesses with a long cultural heritage, outstanding talent and strong focus on people, customers, delivering products and services responsibly, and benefiting society and the environment by acting in a responsible manner. The Combined Group will enhance shareholder value by creating an enlarged platform for growth, particularly in North America. It will have an attractive financial profile with the opportunity to increase net operating margins through cost reductions and operational efficiencies and a strong balance sheet to support growth through continued investments. The Transaction is in line with Rentokil Initial plc’s ongoing strategy of organic growth and growth through mergers and acquisitions, with a strong focus on the North America pest control market.

 

Under the terms of the Transaction, Terminix Shareholders will receive aggregate consideration comprised of approximately US$1.3 billion in cash and approximately 129 million Rentokil Initial plc American Depositary Shares (“New Rentokil Initial ADSs”) (each New Rentokil Initial ADS representing five Rentokil Initial Shares) (the “Merger Consideration”). Terminix Shareholders may elect to receive all cash or all stock consideration with respect to each Terminix Share (other than certain excluded Terminix Shares described in the Merger Agreement), subject to allocation and proration provisions in the event of oversubscription. Each Terminix Share for which no election or an invalid election is received will be deemed to have elected for all stock consideration.

 

Owing to its size, the Transaction constitutes a Class 1 transaction for the purposes of the Listing Rules, and therefore requires the approval by a majority of Rentokil Initial Shareholders. The Transaction is conditional on, amongst other things, such approval being obtained. Accordingly, a General Meeting has been convened for 1.30 p.m.  on 6 October 2022 at the offices of Freshfields Bruckhaus Deringer LLP at 100 Bishopsgate, London, EC2P 2SR, UK. The Notice of General Meeting is set out in Part XVI (Notice of General Meeting) of this document and an explanation of the Resolutions to be proposed is set out in paragraph 16 of Part VI (Letter from the Chairman of Rentokil Initial) of this letter.

 

Terminix Holdings was incorporated in the state of Delaware and the Terminix Shares are listed on the New York Stock Exchange (“NYSE”). Terminix Holdings is therefore not subject to the Listing Rules. Under the terms of the Merger Agreement, and, in accordance with Delaware law, the Transaction is also conditional on Terminix Shareholder approval.

 

42 

 

 

On behalf of the Board, I am pleased to present this significant, value-creating opportunity AND RECOMMEND THE TRANSACTION to Rentokil Initial Shareholders. The purpose of this letter is to: (i) explain the background to and reasons for the Transaction; (ii) explain why the Directors believe that the Transaction is in the best interests of Rentokil Initial plc and Rentokil Initial Shareholders taken as a whole; and (iii)  recommend that, as a Rentokil Initial Shareholder, you vote in favour of the Resolutions to be proposed at the Rentokil Initial General Meeting, as the Board will in respect of their own shareholdings.

 

The notice of the Rentokil Initial General Meeting, at which your approval will be sought for the Transaction, is set out at the end of this document. In order to approve the Transaction, a majority of Rentokil Initial Shareholders attending, whether in person or by proxy, and voting at the Rentokil Initial General Meeting will need to vote in favour of the Resolutions. The Resolutions are described in further detail in paragraph 16 of this Part VI (Letter from the Chairman of Rentokil Initial), and set out in Part XVI (Notice of General Meeting) of this document. Details of the action you should take in order to cast your votes at the Rentokil Initial General Meeting are set out in “Action to be taken” on pages 38-40 of this document. The recommendation of the Directors is set out in paragraph 20 of this Part VI (Letter from the Chairman of Rentokil Initial).

 

2.Background to and reasons for the Transaction

 

Benefits of the Transaction for Rentokil Initial Shareholders

 

Increased scale and leadership in the global pest control market

 

Rentokil Initial and Terminix are significant players in the attractive, largely non-cyclical and growing pest control industry. The global pest control market size was approximately US$20 billion in 2019 and is projected to reach US$32 billion by 2027, exhibiting a compound annual growth rate (“CAGR”) of 6.31 per cent. during the forecast period.

 

Pest control is a largely non-discretionary and essential service. Growth characteristics of the global pest control market include increasing global populations, urbanisation, expansion of the middle classes, climate change, greater intolerance to pest incidence and rising transmission of vector borne diseases. Technological developments are also important factors contributing to the future growth in pest management, including rising demand for remote monitoring systems.

 

The Combined Group will become the leading global pest control company, with a customer base of approximately 4.9 million customers and approximately 57,700 colleagues globally. The Transaction will deliver a significantly enhanced network and improved route density, bringing the Combined Group closer to its customers, with its colleagues able to spend more time directly with customers and less time driving to and from customer visits.

 

Substantially increased scale in North America, providing an enlarged platform for profitable growth

 

The Combined Group will become the leading player in North America, the world’s largest pest control market (representing approximately 51 per cent. of the global market in 2021 and estimated to be worth approximately US$11 billion). As such, North America is of significant strategic importance and focus for Rentokil Initial. It is a highly competitive and fragmented market comprising over 20,000 pest control companies. Commercial pest control comprises the largest segment in North America at approximately 45 per cent. of the market, with residential comprising approximately 35 per cent. and termites at approximately 20 per cent. Rentokil Initial is currently a leading brand in commercial pest control, whilst Terminix is the most recognised brand for termite and residential pest control in the US, undertaking approximately 50,000 customer visits each day from over 380 locations across 45 states. Terminix generated pest control revenues of approximately US$2.0 billion for the year ended 31 December 2021. Post-Completion, the Combined Group will become the leading global pest control company, which will include a leading brand for residential and termite pest control in North America, as well as the leading global brand in commercial pest control.

 

Upon Completion, approximately 60 per cent. of the Combined Group’s total revenues are expected to come from North America. The Combined Group will create additional scale which will enable further investments in people, service quality, innovation, digital technology & applications and sustainability, to meet the future needs of customers and colleagues. Following Completion, the Combined Group intends to open a new science and innovation centre in the US focused on termite and residential pest control.

 

A complementary and synergistic combination

 

Rentokil Initial and Terminix have complementary service lines (combining Rentokil Initial’s expertise in commercial pest control globally with Terminix’s expertise in residential and termite pest control in North America). Rentokil Initial and Terminix’s geographic footprints in North America are also complementary, allowing greater route-density to be achieved, and presenting further opportunities to enhance operational efficiency. Both Rentokil Initial and Terminix have similar operating models which will enable the effective sharing of best practices in the future. In addition, Rentokil Initial is a leader in innovation and digital technology, creating services and products which can be rolled out to Terminix’s approximately 2.9 million pest control customers.

 

43 

 

 

The Combined Group is expected to generate material annual pre-tax cost synergies of at least US$150 million (£129 million converted at the US$:£ exchange rate on the Latest Practicable Date) by the third full year post- Completion, owing to greater footprint density, procurement leverage, property rationalisation, duplicate administrative and overhead rationalisation, marketing, sales effectiveness, head office synergies and financing. Further detailed information on synergies is provided in paragraph 6 of this Part VI (Letter from the Chairman of Rentokil Initial). Both Rentokil Initial and Terminix have a strong track record of integrating acquisitions and are committed to creating a high-quality working environment with attractive opportunities for colleagues from both businesses to develop rewarding long-term careers in the Combined Group. The Board believes the Combined Group will be able to further differentiate itself from its competitors through its strong focus on people, customers, delivering products and services responsibly, and benefiting society and the environment by acting in a responsible manner.

 

An attractive financial profile

 

The Combined Group will have an attractive financial profile, with the opportunity to increase net operating margins through cost reductions and operational efficiencies by approximately one per cent. in each of the three full calendar years post-Completion. A strong balance sheet will support growth through continued investments in people, innovation, digital technologies and sustainability, and through further M&A opportunities around the world. Further detailed information on the Unaudited Pro Forma Financial Information is provided in Part XII (Unaudited Pro Forma Financial Information for the Combined Group) of this document. The Transaction will create a larger, highly diversified and more resilient business in Pest Control and Hygiene & Wellbeing. In North America, Pest Control will be well balanced between residential and termite (expected to be approximately 60 per cent. of revenues) and commercial (expected to be approximately 40 per cent. of revenues) pest services. Revenues from termite control for the financial year ended 31 December 2021 represented approximately 45 per cent. of Terminix’s residential revenues, and are expected to become approximately 20 per cent. of the Combined Group’s North America pest business upon Completion.

 

The Combined Group will also have a strong, complementary international Hygiene & Wellbeing business, with leading positions in 22 of its 67 geographical markets. Revenues from Hygiene & Wellbeing are expected to form approximately 21 per cent. of the total Combined Group revenues and the segment is expected to deliver 4 per cent. to 6 per cent. organic growth each year over the medium term from 2022. The Board remains committed to the growth and development of this business which it believes has the potential to become ‘The New Pest Control’ as set out at Rentokil Initial’s 2021 Capital Markets Day. The Combined Group will target the opportunity to cross-sell and up-sell both Pest Control and Hygiene & Wellbeing services to its enlarged customer base post-Completion.

 

Following Completion, the Combined Group will continue to target the medium-term growth rates set out in Rentokil Initial plc’s annual financial results announcement on 3 March 2022 for the year ended 31 December 2021. These are Ongoing Revenue growth of 6 per cent. to 9 per cent., including Organic Revenue growth of 4 per cent. to 5 per cent, Ongoing Operating Profit growth of over 10 per cent. and Free Cash Flow conversion of approximately 90 per cent. The medium-term Organic Revenue growth target for the Combined Group’s Pest Control segment will remain unchanged at 4.5 per cent. to 6.5 per cent. Medium-term growth targets for the Combined Group’s Hygiene & Wellbeing and Workwear (France) segments will also remain unchanged at 4 per cent. to 6 per cent. and 3 per cent. to 4 per cent. respectively.

 

The Combined Group will remain committed to Rentokil Initial plc’s current progressive dividend policy and expects to have leverage metrics consistent with a BBB investment grade rating within two years from Completion. Net debt to EBITDA is targeted to be 2.0x to 2.5x in the medium term.

 

Benefits of the Transaction for customers

 

Upon Completion, the Combined Group will have approximately 4.9 million customers and a shared commitment to providing the highest levels of customer satisfaction and to developing new, innovative ways to better serve its customer base. Its aim is to achieve this through:

 

(a)Highly trained experts—through the Combined Group’s commitment to training and development, together, it will provide customers with best-in-class levels of service. Service performance and customer satisfaction will be consistently monitored and recorded, reported to the Board and published annually in the Combined Group’s Annual Report;

 

44 

 

 

(b)Providing additional services to existing customers— post-Completion, the Combined Group will jointly examine opportunities to upsell more solutions to its enhanced customer base and the potential for cross sell, for instance, Hygiene & Wellbeing products and services to Terminix’s customers;

 

(c)Access to innovation and digital solutions— Rentokil Initial has excellent levels of capability in innovation and proven, digital pest management tools which it will offer to the Combined Group’s enlarged customer base through a series of product and service launches. These include proprietary connected products for rodent control and digital portals offering customers 24/7 access to service information. Rentokil Initial continues to focus on the global roll out of PestConnect, its digital pest control system, and by 31 December 2021 approximately 235,000 units were installed into approximately 13,000 customer premises across the world. Rentokil Initial’s pipeline of innovations includes new connected devices for flying insects as well as crawling insects such as bed bugs. In addition, Rentokil Initial will deploy its highly successful Command Centre to provide data analytics to further enhance customer services. Rentokil Initial has technology partnerships in place with global leading companies and is also in the early-stage development of new tools, using rich media and artificial intelligence to further enhance its pest control offering;

 

(d)New US science and innovation centre to be opened— post-Completion, the Combined Group intends to invest in a new science and innovation centre, based in the US, which will focus on termite and residential pest control solutions. This will be designed to complement Rentokil Initial’s existing UK-based centres for innovation (the Power Centre) and new technology and product testing;

 

(e)Capitalising on shared strengths and expertise— the Combined Group will have complementary strengths and capabilities, such as Terminix’s expertise in termite and residential pest control and Rentokil Initial’s expertise and global footprint in commercial pest control. The Combined Group will utilise shared best practices and ‘best of breed’ ways of working to benefit its customers;

 

(f)Investment in new systems, processes and technologies—learning from Rentokil Initial’s and Terminix’s technology platforms and IT expertise, the enlarged business will invest in high quality systems, processes and technologies which impact customers, suppliers, colleagues and others, including new systems that integrate, streamline and enhance legacy operating IT systems;

 

(g)Benefits of scale— the Combined Group’s additional scale will enable further investments in people, service quality, innovation, digital and sustainability to meet the future needs of customers and communities. It will continue to work with third-party suppliers to introduce new innovations to its enlarged customer base; and

 

(h)Supporting customers’ sustainability plans— as a responsible supplier to multiple customer sectors, the Combined Group will continue to develop new products and services, using shared expertise to reduce its customers own environmental footprint. These include new products which use fewer chemicals or generate lower levels of carbon emissions than traditional units. The Combined Group will be committed to supporting independent ESG indices and providing environmental and social data to help customers choose their responsible suppliers, and to support other stakeholders.

 

Benefits of the Transaction for colleagues

 

The Combined Group presents additional opportunities for its approximate 57,700 colleagues and will introduce a set of commitments to all colleagues as set out below:

 

(a)Safety will remain the top priority for all colleagues—the Combined Group will measure ‘Lost Time Accident’ rates and ‘Working Days Lost’ and implement best practices from across the Combined Group to enhance safety, which will continue to be the first item on every management agenda;

 

(b)Creating an enhanced Employer of Choice programme—the Combined Group will work together to share best practices from across the enlarged organisation to recruit, train and retain its people more effectively, provide line managers with support and training, and ultimately ensure colleagues have the opportunity to benefit from a long and successful career within the Combined Group. The Combined Group will work to create a culture that is inspiring, encouraging and proactive, and one in which achievements are celebrated and rewarded. Great teamwork will be central to the Combined Group’s future success;

 

(c)Culture and engagement—the Combined Group will place great importance on respect and the diversity, equality and inclusion of its people. It will continue to support with pride veterans who deserve special appreciation and will remain committed to acting responsibly for all colleagues, customers, suppliers and business partners;

 

45 

 

 

(d)Open and honest communication—the Combined Group will commit to regular communication with its colleagues and will continue to listen actively to them through regular surveys, town hall meetings and webinars. In addition, it will establish colleague forums for colleagues to engage with initiatives and ways of working that can support the future growth and success of the group. The Combined Group will consider carefully and explain to its colleagues key decisions on its strategy, people, infrastructure, systems and services. As the Combined Group grows, it expects over time to employ more people and, whilst in the short term there will be some reduction in duplicate roles, the majority of these will come from not replacing those who leave the Combined Group. The Combined Group will measure and set targets to achieve high levels of sales and service colleague retention;

 

(e)Retained commitment to main US locations—the Combined Group will maintain a presence in Memphis, Tennessee, Reading, Pennsylvania and Charlotte, North Carolina and will continue to support their local communities there, and continue to have an extensive network of branches throughout the US;

 

(f)Continuing to invest in the Terminix brand—the Transaction will enhance Terminix’s ability to compete for residential and termite pest control customers in North America, while the combination with Rentokil Initial will increase Terminix’s ability to compete for commercial pest control customers. Innovating and finding new and more sustainable ways of working will be a key component of the enlarged business’s strategy going forward. The purpose of the Combined Group will be to ‘Protect People and Enhance Lives’ and it aims to deliver this through outstanding people delivering best in class service;

 

(g)Tools to get the job done—the Combined Group will adopt a pragmatic ‘best of breed’ approach to identifying which tools to use going forward. This includes investing in a common IT system to make the Combined Group more effective and efficient for its people and customers. Added scale will also allow the Combined Group to continue to invest in new tools, including digital systems and services;

 

(h)Being part of a local-global family—the Combined Group will learn from its colleagues and customers locally and globally, providing job opportunities across town, state, country and the world;

 

(i)Becoming more sustainable—Rentokil Initial and Terminix have both begun their journey towards a more environmentally-friendly future and will join forces to share collective expertise. Focus areas include the introduction of non-toxic products, the use of digital services requiring fewer chemicals, greater route density leading to more eco-efficient driving, deployment of an ultra-low emissions fleet and reduced waste and packaging. The Combined Group will commit to becoming a net zero carbon emissions company by 2040; and

 

(j)Supporting communities and charities—Rentokil Initial Cares is the Company’s global charity and community programme which supports colleagues’ own efforts locally, alongside national and global initiatives. It has a clear focus on supporting charitable organisations that align with the Rentokil Initial’s social purpose of Protecting People and Enhancing Lives. Terminix Cares is Terminix’s community platform for giving and volunteerism, which guides its relationships with customers and external partnerships and supports community organisations. The Combined Group will continue to be passionate about supporting the communities in which it operates by helping charitable causes through its Cares local, national and global initiatives and donations. This will be an important part of its plan to be a responsible employer of choice.

 

3.Summary information on Terminix

 

Terminix is a leading provider of residential and commercial pest control services, specialising in protection against termite damage, rodents, insects and other pests. Organised in Delaware in 2007, Terminix is the successor to various entities dating back to 1927 and is headquartered in Memphis, Tennessee and has operations in 24 countries and territories. Terminix makes over 50,000 home and business visits every day.

 

Terminix has scale and deep presence in the US and for the year ended 31 December 2021, 93 per cent. of Terminix’s revenue was generated by sales in the US and approximately 90 per cent. of the book value of its assets is located in the US. For the year ended 31 December  2021, Terminix recorded revenue of US$2.0 billion and net income of US$125 million.

 

Terminix operates three service lines: Residential Pest Management, Commercial Pest Management and Termite and Home Services. Over 80 per cent. of Terminix’s revenue comes from customers who enter into contracts with the option to renew periodically (e.g. annually, monthly or quarterly). Terminix’s revenues are not dependent on a single customer. However, a significant percentage of its revenue is concentrated in the southern and western regions of the US, with California, Texas and Florida collectively accounting for approximately one-third of Terminix’s revenues in 2021.

 

46 

 

 

4.Summary financial information on Terminix

 

The following selected historical consolidated financial data prepared in accordance with US GAAP has been extracted without material adjustment from Terminix Holdings’ unaudited consolidated interim financial statements for the six months ended 30 June 2022 and 30 June 2021 and audited consolidated financial statements for the years ended 31 December 2021, 31 December 2020 and 31 December 2019 included within Part XI (Historical Financial Information on Terminix) of this document.

 

    As of and for the six
months ended 30 June
    As of and for the year
ended 31 December
 
             
    (US$ millions, except number of
shares and per share information)
 
    2022     2021     2021     2020     2019  
Statement of operations data:                            
Revenue     1,081       1,032       2,045       1,961       1,819  
Income from Continuing Operations before Income Taxes     39       110       180       41       64  
Income from Continuing Operations     21       81       126       20       60  
Net Income        21       81       125       551       128  
Other Comprehensive (Loss), Net of Income Taxes      29       17       17       (47 )     4  
Total Comprehensive Income     50       97       142       504       132  
Per share data:                                        
Weighted-average common shares outstanding—Basic     121.5       129.3       126       132.7       135.8  
Basic earnings per share—Net Income (US$)     0.17       0.62       1       4.15       0.94  

 

   As of and for the six
months ended 30 June
   As of and for the year
ended 31 December
 
         
   (US$ millions, except number of
shares and per share information)
 
   2022   2021   2021   2020   2019 
Balance sheet data:                         
Assets:                         
Current assets    698    730    514    1,010    629 
Total assets      4,486    4,567    4,410    4,837    5,322 
Liabilities:                         
Current liabilities    544    552    511    588    557 
Total stockholders’ equity   2,436    2,508    2,375    2,741    2,322 

 

    As of and for the six
months ended 30 June
    As of and for the year
ended 31 December
 
             
    (US$ millions, except number of shares and
per share information)
 
    2022     2021     2021     2020     2019  
Cash flow data:                                        
Net cash flow from operating activities     159       151       239       198       164  
Net cash flow from investing activities     20       (56 )     (131 )     (47 )     (519 )
Net cash flow from financing activities     (26 )     (409 )     (623 )     (992 )     328  

 

Further detailed information on the historical financial information for Terminix is provided in Part XI (Historical Financial Information on Terminix) of this document.

 

5.Summary of the terms of the Transaction

 

The Transaction will be undertaken through a US statutory merger in which Terminix Shareholders will receive aggregate consideration of approximately US$1.3 billion in cash and approximately 129 million New Rentokil Initial ADSs. As part of the Transaction, Rentokil Initial plc will list the Rentokil Initial ADSs on the NYSE.

 

Based on the reference price of Rentokil Initial Shares on the Latest Practicable Date, this implies:

 

(a)a total current value of US$5.3 billion for the Terminix Shares, comprised of approximately US$1.3 billion in cash and US$3.9 billion in New Rentokil Initial Shares (all of which will be represented by New Rentokil Initial ADSs); and

 

47 

 

 

(b)total consideration to Terminix Shareholders of US$43.33 per share, which represents a premium of 15.8 per cent. over the closing price of Terminix Shares on 13 December 2021 (being the last day prior to the announcement of the Transaction).

 

Terminix Shareholders may elect to receive all cash or all stock consideration, subject to proration in the event of oversubscription. Each Terminix Share for which no election or an invalid election is received will be deemed to have elected for all stock consideration.

 

For the Terminix Shareholders, the value of the per share cash consideration and the value of the per share stock consideration as of the measurement day (being 10 October 2022) will be substantially the same and so each Terminix Shareholder’s election will not affect the aggregate value of its consideration at Completion.

 

From the perspective of Rentokil Initial, the total number of New Rentokil Initial ADSs to be issued and the aggregate amount of cash to be paid under the terms of the Merger Agreement will not vary as a result of individual election preferences.

 

The Transaction will take place by way of a statutory merger under the laws of Delaware, pursuant to which Merger Sub I, a Delaware corporation and an indirect wholly owned subsidiary of Rentokil Initial plc, will merge with and into Terminix Holdings, with Terminix Holdings surviving the merger. Terminix Holdings will then merge with and into Merger Sub II, a Delaware limited liability company and an indirect wholly owned subsidiary of Rentokil Initial plc, with Merger Sub II surviving as an indirect wholly owned subsidiary of Rentokil Initial plc. The Merger Agreement was entered into on 13 December 2021, the terms of which are more fully described in Part IX (Summary of the Key Transaction Terms) of this document.

 

Assuming the satisfaction or waiver of all Conditions, Completion is expected to take place on 12 October 2022. Following Completion, Rentokil Initial plc will announce that the Transaction has taken effect. The announcement will be made by way of an announcement despatched via a Regulatory Information Service.

 

6.Synergies and integration

 

Rentokil Initial plc believes that the Transaction will create significant value for shareholders, who will be able to participate in the Combined Group’s continued success through their ownership in the global leader in a high-quality growth market.

 

The Combined Group is expected to deliver substantial value creation for Rentokil Initial Shareholders from annualised pre-tax net cost synergies of at least US$150 million (£129 million converted at the US$:£ exchange rate on the Latest Practicable Date) by the end of year three post-Completion. The run rate synergies are expected to accumulate to approximately 30 per cent., approximately 80 per cent. and 100 per cent. by the end of the first, second and third 12-month periods respectively, post-Completion and are expected to be recurring.

 

In achieving these synergies, the Combined Group expects to incur aggregate cash implementation costs of approximately US$150 million, half of which will be incurred in the first 12 months post-Completion.

 

Synergies will be achieved through operational and route density, procurement leverage, property rationalisation, reduced corporate costs and efficiencies in administrative functions and overheads. Savings can also be made in marketing and sales effectiveness and by leveraging the best of both Rentokil Initial’s and Terminix’s technology and IT systems. The Board expects cost synergies to be achieved as follows:

 

(a)back office synergies from reduced corporate costs, and scale efficiencies in administrative functions and overheads, is expected to represent approximately 50 per cent. of the total synergies; and

 

(b)combining branches and routes will drive service productivity and savings in property costs; this is expected to represent the remaining approximately 50 per cent. of total synergies.

 

At the time of the announcement of the Transaction, it was expected that additional non-operating synergies of US$11 million would be achieved in relation to reduced financing costs. However, due to the ongoing macro- economic uncertainty and following forecast US federal funds rate increases which have resulted in an increase in projected refinancing costs, the Company is not able to forecast, as at the date of this document, the level of non-operating synergies that could be achieved in relation to financing costs.

 

The Transaction is expected to be mid-teens per cent. accretive compared to standalone Rentokil Initial plc’s earnings per share in the first full year following Completion based on the historic and projected profitability of Terminix and taking into account the beneficial elements and relevant costs of the Transaction. While the level of earnings accretion may vary from year to year, the anticipated financial benefit is expected to be recurring, is contingent on Completion and could not be fully achieved independently. The Transaction is also expected to exceed the Company’s cost of capital by the third full year following Completion, including at least US$150 million of cost synergies.

 

48 

 

 

The Combined Group’s margin profile and operating scale efficiencies are expected to enable it to reduce its costs and increase overall efficiencies, creating flexibility for it to deploy capital strategically and drive value for its shareholders, including pursuing bolt-on and new-entry acquisition opportunities that will extend the Combined Group’s capabilities into new markets, segments and cities of the future.

 

The estimated synergies reflect both the beneficial elements and relevant costs. The Board expects these anticipated synergies to accrue as a direct result of the Transaction and that they would not otherwise be achieved on a standalone basis and does not expect any material dis-synergies to arise in connection with the Transaction.

 

The Board is confident that the integration of Terminix can be achieved without causing any material disruption to the underlying operations of the two businesses. As at the date of this document, appropriate preparatory integration planning is being undertaken by an integration leadership team comprising members of senior management of both Rentokil Initial and Terminix. Specific integration teams have been established across each functional division and are working together to produce detailed integration plans that will be implemented immediately following Completion.

 

7.Summary of Unaudited Pro Forma Financial Information for the Combined Group

 

Summary of Unaudited Pro Forma income statement

 

   For the
six months ended
30 June
2022
   For the
year ended
31 December
2021
 
   (in £ millions)    (in £ millions) 
Total revenue   2,405    4,441 
Operating profit   248    333 
Profit before income tax   187    216 
Profit attributable to the Company’s equity holders   140    152 

 

Summary of Unaudited Pro Forma Statement of net assets

 

   As of 30 June
2022
 
    (in £ millions) 
Non-current assets   9,334 
Current assets   2,503 
Non-current liabilities   4,918 
Current liabilities   2,161 
Net assets   4,758 

 

Further detailed information on the Unaudited Pro Forma Financial Information is provided in Part  XII (Unaudited Pro Forma Financial Information for the Combined Group) of this document.

 

8.Management and employee incentive arrangements

 

Rentokil Initial and Terminix will mutually agree on one non-executive director from Terminix Holdings’ board of directors who will join the Board as a Director upon Completion.

 

Under the terms of the Merger Agreement, Rentokil Initial plc has agreed that for 12 months following Completion, it will provide Terminix employees with a base salary that is no less favourable than that provided before Completion and target cash and long-term equity incentive opportunities that are in the aggregate substantially comparable to those provided before Completion. Details on how the Terminix Equity Awards are treated under the Merger Agreement are set out in Part IX (Summary of the Key Transaction Terms) of this document.

 

The Combined Group’s headquarters will be located at Rentokil Initial plc’s existing headquarters at Compass House, Manor Royal, Crawley, West Sussex, RH10 9PY, UK (which is also its registered office).

 

49 

 

 

9.   Dividends and dividend policy

 

Terminix Shareholders who receive New Rentokil Initial ADSs in the Transaction will be entitled to Rentokil Initial plc dividends (with record dates following Completion) in respect of the New Rentokil Initial Shares represented thereby. The New Rentokil Initial Shares will, when issued, rank equally with each other and with all existing Rentokil Initial Shares and will rank in full for all dividends and other distributions thereafter declared, made or paid in respect of the existing Rentokil Initial Shares. The New Rentokil Initial ADSs will, when issued, rank equally with each other and with all the Existing Rentokil Initial ADSs and will rank in full for all dividends and other distributions thereafter declared, made or paid in respect of the Existing Rentokil Initial ADSs.

 

The Combined Group will remain committed to Rentokil Initial plc’s current progressive dividend policy and expects to have leverage metrics consistent with a BBB investment grade rating within two years from Completion.

 

10.   Summary of the Merger Agreement

 

10.1   Conditions to the Transaction

 

The Merger Agreement contains a number of Conditions, which are more fully described in Part IX (Summary of the Key Transaction Terms) of this document. Rentokil Initial will not be required to complete the Transaction if any of the Conditions have not been satisfied or, to the extent legally permitted, waived. Certain of the material Conditions are summarised below:

 

(a)Rentokil Initial Shareholder approval:

 

(i)Rentokil Initial Shareholder approval of the Resolutions by a majority of Rentokil Initial Shareholders attending, whether in person or by proxy, and voting at the Rentokil Initial General Meeting;

 

(b)Terminix Shareholder approval:

 

(i)adoption of the Merger Agreement by the holders of a majority of the outstanding Terminix Shares entitled to vote at the special meeting of Terminix Shareholders to be called for the purposes of such vote the Terminix Special Meeting;

 

(c)admission of New Rentokil Initial Shares to listing on the London Stock Exchange’s main market for listed securities and New Rentokil Initial ADSs on the NYSE:

 

(i)approval of the FCA and the London Stock Exchange for admission of the New Rentokil Initial Shares to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange, respectively, subject only to the issue of such New Rentokil Initial Shares upon Completion; and

 

(ii)approval for listing on the NYSE of the New Rentokil Initial ADSs issuable to Terminix Shareholders as the share portion of the Merger Consideration (subject to official notice of issuance); and

 

(d)registration statements declared effective by the SEC:

 

(i)effectiveness of Form F-4 and Form F-6 relating to the New Rentokil Initial Shares and New Rentokil Initial ADSs, respectively, to be issued as the share portion of the Merger Consideration (and the absence of any stop order suspending the effectiveness of such registration statements or any proceedings seeking such a stop order pending before the SEC).

 

The Transaction was conditional on the expiration or termination of the applicable waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act 1976, as amended (the “HSR Act”), which expired on 14 March  2022. As such, the regulatory condition to the Transaction has been satisfied. The Transaction was also conditional on completion of the Required Divestments, which occurred on 1 June 2022.

 

For further information, please see Part IX (Summary of the Key Transaction Terms) of this document.

 

10.2   Termination payment

 

Rentokil Initial plc will be entitled to receive, by way of compensation, a termination payment of US$50 million from Terminix Holdings, subject to certain specified conditions, in the event that Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because the required approval of the Terminix Shareholders is not obtained. The termination payment is subject to:

 

(a)the Rentokil Initial Shareholders approving the Transaction at the Rentokil Initial General Meeting; or

 

50 

 

 

(b)(i) the Rentokil Initial Shareholders not approving the Transaction at the Rentokil Initial General Meeting,

 

(ii)             Rentokil Initial plc having reasonably cooperated and used its commercially reasonable efforts to cause the Rentokil Initial General Meeting to occur on the same day as the Terminix Special Meeting and

 

(iii)            more than 24 hours having passed since the required approval of the Terminix Shareholders not being obtained.

 

Rentokil Initial plc will be entitled to receive, by way of compensation, a termination payment of US$200 million from Terminix Holdings, subject to certain specified conditions, in the event that:

 

(a)prior to the adoption of the Merger Agreement by the Terminix Shareholders, Rentokil Initial plc terminates the Merger Agreement following an adverse recommendation change by Terminix Holdings or the commencement of a takeover offer of Terminix Holdings which Terminix Holdings does not publicly reject within 10 business days;

 

(b)prior to the adoption of the Merger Agreement by the Terminix Shareholders, Terminix Holdings terminates the Merger Agreement in order to accept a superior proposal; or

 

(c)(i) Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because (A) the Long Stop Date (as may be extended) occurs and the required approval by Terminix Shareholders has not been obtained or (B) the required approval of the Terminix Shareholders is not obtained at the Terminix Special Meeting, or Rentokil Initial plc terminates the Merger Agreement because of a breach by Terminix Holdings of certain warranties or obligations in the Merger Agreement and (ii) prior to such termination, a proposal for the acquisition of 50 per cent. or more of the Terminix Shares or the assets of Terminix Holdings is publicly announced or made known and not withdrawn and (iii) within 12 months after the date on which the Merger Agreement was terminated Terminix Holdings enters into a definitive agreement relating to any proposal for the acquisition of 50 per cent. or more of the Terminix Shares or the assets of Terminix that is subsequently completed or such a proposal is completed.

 

Terminix Holdings will be entitled to receive, by way of compensation, a termination payment of US$50 million from Rentokil Initial plc, subject to certain specified conditions, in the event that Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because the required approval of the Rentokil Initial Shareholders is not obtained. This termination payment is subject to:

 

(a)the Terminix Shareholders adopting the Merger Agreement at the Terminix Special Meeting; or

 

(b)(i)  the Terminix Shareholders not adopting the Merger Agreement at the Terminix Special Meeting,

 

(ii) Terminix having reasonably cooperated and used its commercially reasonable efforts to cause the Terminix Special Meeting to occur on the same day as the Rentokil Initial General Meeting and (iii) more than 24 hours having passed since the required approval of the Rentokil Initial Shareholders not being obtained.

 

Terminix Holdings will be entitled to receive, by way of compensation, a termination payment of US$150 million from Rentokil Initial plc, subject to certain specified conditions, in the event that:

 

(a)prior to the approval of the Transaction by the Rentokil Initial Shareholders, Terminix Holdings terminates the Merger Agreement following an adverse recommendation change by Rentokil Initial plc or the commencement of a takeover offer of Rentokil Initial plc which Rentokil Initial plc does not publicly reject with 10 business days;

 

(b)(i) Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because (A) the Long Stop Date (as may be extended) occurs and the required approval by Rentokil Initial Shareholders has not been obtained or (B) the required approval of the Rentokil Initial Shareholders is not obtained at the Rentokil Initial General Meeting, or Terminix Holdings terminates the Merger Agreement because of a breach by Rentokil Initial plc of certain warranties or obligations in the Merger Agreement, and (ii) prior to such termination, a proposal for the acquisition of 50 per cent. or more of the Rentokil Initial Shares or the assets of Rentokil Initial plc is publicly announced or made known and not withdrawn prior to the meeting and (iii) within 12 months after the date on which the Merger Agreement was terminated Rentokil Initial plc enters into a definitive agreement relating to any proposal for the acquisition of 50 per cent. or more of the Rentokil Initial Shares or the assets of Rentokil Initial plc that is subsequently completed or such a proposal is completed; or

 

(c)Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because (i) the Completion does not occur by the Long Stop Date (as may be extended) due to an injunction or order related to antitrust laws, while other Conditions have been satisfied or waived, or (ii) a permanent final injunction or order related to antitrust laws prohibits the Completion.

 

51 

 

 

11.   Transaction financing

 

To support the financing of the Merger Consideration, on 13 December 2021 Rentokil Initial plc entered into a mandate letter under which Barclays Bank PLC committed to provide a bridge financing facility for up to US$2.7 billion. That mandate letter was replaced with the Bridge Facility.

 

The Bridge Facility originally comprised two tranches, Facility A and Facility B, both of which are term loans. Facility A was refinanced and cancelled in full on 30 June 2022, following the issuance of the New Senior Notes under Rentokil Initial’s EMTN Programme. Facility B is provided by: Banco Santander S.A., London Branch; Bank of America Europe Designated Activity Company; Bank of China Limited, London Branch; Barclays Bank PLC; BNP Paribas, London Branch; Fifth Third Bank, National Association; HSBC UK Bank plc; ING Bank N.V., London Branch; JPMorgan Chase Bank, N.A., London Branch; Mizuho Bank, Ltd; Skandinaviska Enskilda Banken AB (publ); Standard Chartered Bank; The Bank of Nova Scotia, London Branch; United Overseas Bank Limited, London Branch; and Wells Fargo Bank, N.A., London Branch. The termination date for Facility B is the third anniversary of the first utilisation date under the Bridge Facility.

 

Facility B, in addition to the proceeds from the issuance of the New Senior Notes, is intended to contribute to the financing of the cash portion of the Merger Consideration, the refinancing of existing Terminix Holdings debt and associated acquisition costs.

 

On 27 June 2022, Rentokil Initial plc and RI BV issued the New Senior Notes under Rentokil Initial’s EMTN Programme raising proceeds of £400 million and €1.45 billion. The New Senior Notes include an optional acquisition redemption option. If the Transaction is not completed on or before 13 March 2023 or Rentokil Initial plc publicly announces on or before 13 March 2023 that it no longer intends to pursue the Transaction, the relevant series of EMTN Notes may be redeemed (in whole but not in part) by the relevant issuer upon expiry of the requisite period of notice at the acquisition event early redemption amount specified in the relevant pricing supplement, together with accrued interest.

 

For further information, please see paragraph 2 of Part IX (Summary of the Key Transaction Terms) of this document.

 

12.   Current Trading and Prospects

 

12.1   Rentokil Initial

 

Six months ended 30 June 2022 (at CER)

 

On 28 July 2022, the Company published its unaudited consolidated interim financial statements for the six month period ended 30 June 2022, delivering Ongoing Revenue and Ongoing Operating Profit growth and strong Free Cash Flow delivery.

 

Total revenue increased by 8.1 per cent. to £1.6 billion at AER (up 5.6 per cent. at CER). The core businesses delivered Organic Revenue growth of 7.3 per cent., driven by strong demand for business services and demonstratable price progression.

 

Net operating margins increased by 0.6 per cent. to 14.9 per cent., despite the anticipated reduction of disinfection business. Ongoing Operating Profit rose by 9.6 per cent. to £228.1 million (£232.5 million at AER), reflecting business growth across all major reporting countries, regions and categories.

 

Pest Control delivered Ongoing Revenue growth of 12.1 per cent. (5.6 per cent. organic) to £1.0 billion, driven by strong price progression and with good work volumes. Ongoing Revenue for Hygiene & Wellbeing, excluding disinfection services, grew by 10.8 per cent. (10.0 per cent. organic) to £377.7 million, supported by strong demand for critical services. Ongoing Revenue, including disinfection services, was £391.3 million. Improving market conditions were reflected in the stronger contribution from the Workwear (France) business, which overall returned to pre-pandemic levels. Ongoing Revenue in Workwear (France) rose by 16.0 per cent. to £91.6 million.

 

Revenues from one-time disinfection services amounted to £13.6 million (which is a reduction of 85.7 per cent. compared to the same six-month period in 2021). Sales of disinfection have trended fully in line with expectations and market guidance. The impact of the anticipated reduction in disinfection was most pronounced in the period in North America and Europe, where Ongoing Revenue growth including disinfection was 2.1 per cent. and 8.9 per cent. respectively. Full year revenues from disinfection are anticipated to be in the region of £20 million, in line with previous guidance.

 

Rentokil Initial delivered further strong execution of M&A in the first six months of 2022, acquiring 31 businesses in 17 countries, comprised of 26 acquisitions in Pest Control and five in Hygiene & Wellbeing.

 

52 

 

 

Rentokil Initial’s total consideration for acquisitions in the first six months of 2022 amounted to £159.6 million, with total annualised revenues of £68.4 million in the year prior to purchase.

 

Outlook for the six months ended 31 December 2022

 

In its interim results for the six months ended 30 June 2022, the Company provided the following guidance for the six months ended 31 December 2022:

 

The nature of our business model remains a key determinant of the strength and resilience of our performance. As a global operation that benefits from highly defensive product and service lines, the company is well placed to navigate macro-economic and geopolitical volatility. In the first half, the topline has sustained excellent momentum. We’ve been successful in proactively managing cost inflation through pricing to protect margin, while continuing to drive margin improvements through delivery on our strategy. In addition to delivering increased scale and density in North America and leadership in the global pest control market, the Terminix acquisition provides a significant opportunity to achieve additional structural cost savings across the combined organisation. We look forward to delivering further good progress in the second half of the year.”

 

12.2   Terminix

 

Six months ended 30 June 2022

 

On 5 August 2022, Terminix Holdings reported its half-year results for the six months ended 30 June 2022.

 

Total revenues were US$1.1 billion, a 5 per cent. increase compared to the same period in 2021. Net income decreased by US$60 million compared to the same period in 2021 to US$21 million.

 

Residential pest management revenue growth was seven per cent., reflecting Organic Revenue growth of five per cent. Organic Revenue growth was driven by higher mosquito and bedbug sales volume, improved trailing 12-month customer retention rates, and strong price realisation. Residential pest management revenue also increased one per cent. from acquisitions completed in the last 12 months.

 

Commercial pest management revenue growth was one per cent. The Organic Revenue decline of two per cent. was mainly driven by completion of the Required Divestments, which occurred on 1 June 2022. International pest revenue was negatively impacted by approximately US$4 million of foreign currency. Excluding the impact of foreign currency and the Required Divestments, commercial pest Organic Revenue growth would have been approximately one per cent. Commercial pest management revenue also increased four per cent. from acquisitions completed in the last 12 months.

 

Termite and Home Service Organic Revenue growth was six per cent. Termite completions were flat. Home services, which are managed as a component of Terminix Holdings’ termite line of business and include wildlife exclusion, crawl space encapsulation and attic insulation, growth was 20 per cent., primarily as a result of improved cross-selling to existing customers. Termite renewals increased two per cent., mainly due to improved price realisation.

 

Outlook for 2022

 

Terminix’s focus areas for 2022 are improving employee and customer retention, improving technician cross- selling capabilities to drive customer penetration and developing its digital marketing capabilities to drive increased lead generation.

 

13.   De-listing of Terminix Shares and listing of New Rentokil Initial Shares

 

13.1   De-listing of Terminix Shares

 

If the Transaction completes, there will no longer be any publicly held Terminix Shares. Accordingly, Terminix Shares will be delisted from the NYSE and will be deregistered under the Exchange Act as soon as practicable following Completion, and thereafter Terminix will no longer be required to file periodic reports with the SEC in respect of Terminix Shares.

 

13.2   Listing of New Rentokil Initial Shares

 

Under the terms of the Merger Agreement, it is a condition to Completion that (i) the New Rentokil Initial Shares be approved for admission to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange and (ii) the New Rentokil Initial ADSs to be issued as Merger Consideration be approved for listing on the NYSE, subject to official notice of issuance, each prior to Completion. It is a condition to both parties’ obligations to complete the Transaction that such approvals are obtained. Accordingly, application will be made to have the New Rentokil Initial Shares approved by the FCA for admission to the premium listing segment of the Official List of the FCA and by the London Stock Exchange for admission to trading on the main market for listed securities of the London Stock Exchange and for the New Rentokil Initial ADSs to be approved for listing on the NYSE.

 

53 

 

 

The existing Rentokil Initial Shares are already admitted to listing on the premium listing segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities, under the ticker symbol “RTO”, and also for settlement via CREST. It is expected that all of the New Rentokil Initial Shares, when issued and fully paid, will be capable of being transferred by means of CREST. The New Rentokil Initial Shares will trade under ISIN GB00B082RF11 which is the same ISIN as the existing Rentokil Initial Shares.

 

The New Rentokil Initial Shares will be created under the Companies Act, will be issued in registered form and will be capable of being held in both certificated and uncertificated form. The rights attached to the New Rentokil Initial Shares will be the same as those attached to the existing Rentokil Initial Shares, which are described in paragraph 3 of Part XIII (Additional Information) of this document.

 

Upon Completion, the New Rentokil Initial ADSs will be listed on the NYSE under the ticker symbol “RTO”, together with the Existing Rentokil Initial ADSs. The Rentokil Initial ADSs will trade under ISIN US7601251041. The rights of holders of the Rentokil Initial ADSs will be governed by the terms of a depositary agreement between the Depositary, Rentokil Initial plc and the owners and beneficial owners of the Rentokil Initial ADSs.

 

14.Dilution

 

Subject to Completion, up to approximately 645 million New Rentokil Initial Shares will be issued in connection with the Transaction. This will result in Rentokil Initial plc’s issued share capital increasing by approximately 35 per cent. (including shares owned by employee share trusts). Following Completion and assuming that 645,386,010 New Rentokil Initial Shares are issued in connection with the Transaction, Rentokil Initial Shareholders will be subject to an immediate dilution as a result of the issue, following which they will hold approximately 74 per cent. of the Combined Group’s issued share capital.

 

15.Taxation

 

The Transaction does not involve existing Rentokil Initial Shareholders disposing of their Rentokil Initial Shares or acquiring additional Rentokil Initial Shares. As such, the Transaction is not expected to have any UK or US tax implications for existing Rentokil Initial Shareholders. The contents of this document are not to be construed as tax advice and each Rentokil Initial Shareholder should consult its own tax adviser for tax advice in relation to its holding of Rentokil Initial Shares.

 

16.Rentokil Initial General Meeting

 

The Rentokil Initial General Meeting has been convened for 1.30 p.m. on 6 October 2022 at the offices of Freshfields Bruckhaus Deringer LLP at 100 Bishopsgate, London, EC2P 2SR, UK, for Rentokil Initial Shareholders to consider and, if thought fit, pass the Resolutions.

 

The Transaction Resolution, set out as Resolution 1 in the Notice of General Meeting in Part XVI (Notice of General Meeting) of this document, proposes that the Transaction be approved and that the Directors be authorised to take all steps as may be necessary, expedient or desirable to implement the Transaction.

 

The Allotment Resolution, set out as Resolution 2 in the Notice of General Meeting in Part XVI (Notice of General Meeting) of this document, is conditional on the Transaction Resolution being passed and proposes that the Directors be authorised to allot up to 670,000,000 Rentokil Initial Shares in connection with the Transaction.

 

The Borrowings Resolution, set out as Resolution 3 in the Notice of General Meeting in Part XVI (Notice of General Meeting) of this document, is conditional on Completion and proposes that the Company be authorised to incur borrowings, in excess of the limit in the Articles, of up to an aggregate total of £5 billion, which is considered by the Board to be an appropriate threshold for the Combined Group taking into account the current borrowings of Rentokil Initial plc and the anticipated borrowings in connection with the Transaction. Currently, under the Articles, Rentokil Initial plc is prohibited from borrowing more than £3 billion unless sanctioned in advance by an ordinary resolution of the Rentokil Initial Shareholders.

 

54 

 

 

The Share Plan Resolution, set out as Resolution 4 in the Notice of General Meeting in Part XVI (Notice of General Meeting) of this document, is conditional on Completion and proposes that the Terminix Share Plan be adopted by the Company to enable (i) the assumption and conversion of certain Terminix Equity Awards into equivalent awards in respect of Rentokil Initial ADSs and (ii) to the extent necessary the provision of substantially comparable aggregate incentive opportunities to Terminix employees for 12 months following Completion, in each case pursuant to the Merger Agreement. Details of the Terminix Share Plan are set out in paragraph 16 of Part XIII (Additional Information) of this document.

 

The Transaction will not complete unless all four Resolutions are passed. A notice of the Rentokil Initial General Meeting is set out at the end of this document. The Board unanimously considers that the Resolutions are in the best interests of Rentokil Initial plc and Rentokil Initial Shareholders and recommends that Rentokil Initial Shareholders vote in favour of the Resolutions as the Directors intend to do in respect of their own legal and beneficial holdings of Rentokil Initial Shares.

 

17.Action to be taken

 

Your attention is drawn to the part of this document entitled “Action to be taken” at pages 38-40, which explains the actions you should take in relation to the Rentokil Initial General Meeting.

 

18.Further information

 

Your attention is drawn to the additional information set out in Part XIII (Additional Information) and the Notice of General Meeting in Part XVI (Notice of General Meeting) of this document. You should read the whole of this document and the accompanying Form of Proxy and not rely solely on the information summarised in this letter.

 

A copy of this document (and all information incorporated into this document by reference to another source) and the Form of Proxy are and will be available for inspection on Rentokil Initial plc’s website at https:// www.rentokil-initial.com/generalmeeting.

 

19.Financial advice

 

The Board has received financial advice from Barclays and Goldman Sachs in relation to the Transaction. In providing their respective financial advice to the Board, each of Barclays and Goldman Sachs have relied upon the Board’s commercial assessment of the Transaction.

 

20.Recommendation

 

The Board considers the Transaction is in the best interests of Rentokil Initial plc and the Rentokil Initial Shareholders taken as a whole. Accordingly, the Board unanimously recommends that Rentokil Initial Shareholders vote or procure votes in favour of the Resolutions at the Rentokil Initial General Meeting, as the Directors intend to do in respect of their own legal and beneficial holdings of 2,018,745 Rentokil Initial Shares representing, in aggregate, approximately 0.11 per cent. of Rentokil Initial plc’s issued share capital as at the Latest Practicable Date.

 

Yours faithfully

 

Richard Solomons

Chairman

 

55 

 

 

PART VII

 

INFORMATION ON RENTOKIL INITIAL

 

1.Overview

 

Rentokil Initial is a global leader in the provision of route-based services which protect people and enhance lives, everywhere. Incorporated as Rentokil Limited in 1926 in England and Wales and listed on the London Stock Exchange market in 1969, Rentokil Initial now has a global reach, with approximately 46,000 colleagues and operations in 88 countries around the world, in more than 90 of the world’s 100 leading cities. In 1996, Rentokil Limited acquired British Electric Traction and the ‘Initial’ brand to become Rentokil Initial.

 

Rentokil Initial’s purpose is to protect people from the dangers of pest-borne disease and the risks of poor hygiene and to enhance lives with services that protect the health and wellbeing of people and the reputation of its customers’ brands. For the year ended 31 December 2021, Rentokil Initial recorded revenue of £3.0 billion and operating profit of £346.5 million. For the six months ended 30 June 2022, Rentokil Initial recorded revenue of £1.6 billion and operating profit of £169.7 million.

 

Rentokil Initial operates three business segments: Pest Control, Hygiene & Wellbeing and Workwear (France). However, Rentokil Initial considers Pest Control and Hygiene & Wellbeing to be its core business segments. The Pest Control business is the world’s leading international commercial pest control service provider, offering high levels of risk management, reassurance and responsiveness to customers. The Hygiene & Wellbeing business offers a wide range of services to meet today’s rising expectations for hygiene, including core washroom services, specialist services in air care and clinical-waste management, and environment-enhancing services including scenting, plants and air monitoring. The Workwear (France) business specialises primarily in the supply and laundering of workwear, uniforms, cleanroom garments and personal protective wear in France.

 

Innovation is an integral part of Rentokil Initial’s business, with a focus on developing sustainable non-toxic solutions and digitalisation of products and services. Rentokil Initial is also committed to promoting business- wide environmental sustainability and is commited to net zero carbon impact by 2040.

 

2.Key principal activities and strategy

 

Pest Control

 

Services and Products

 

Rentokil Initial’s Pest Control segment delivers essential services to residential customers and commercial organisations that protect and enhance public health. Rentokil Initial’s pest control technicians identify, control and eliminate pests. This involves services such as inspecting customer premises on a regular schedule, advising customers on preventative measures or suitable methods of treatment, undertaking a program of treatments using pest control equipment or chemicals to control and eliminate the target pests and reporting on all inspections undertaken, detailing the program of treatments and chemicals used on the premises to comply with health and safety requirements. For larger premises or infestations, a pest control surveyor or technical specialist may be called upon to provide an initial report and recommendations. Rentokil Initial technicians deliver services through the day and can be on call for out-of-hours emergencies. They are self-sufficient, and their productivity is improved through routing tools, density planning and smart scheduling.

 

Rentokil Initial has launched a significant number of product innovations, primarily including products for rodent control and flying and crawling insect control, with an increasing focus on non-toxic pest control solutions.

 

Customers

 

In 2021, commercial pest control services accounted for approximately 75 per cent. of Rentokil Initial’s total Pest Control revenue, with residential pest control representing approximately 25 per cent., with over 85 per cent. of the residential pest control revenue coming from the US and Australia. Rentokil Initial’s key commercial customer sectors include food and beverage processing, hospitality, facilities management, offices and administrative, and logistics and warehousing. On a per capita basis, both the US and Australia have much larger residential markets for pest control than in Europe, primarily because of the presence of termites and wooden housing. Industries are increasingly adopting a “zero tolerance” attitude towards pests to protect their customers and reputations, and as a result, Rentokil Initial continues to set new standards for service excellence through market-leading technical training, innovation and digital tools.

 

56 

 

 

Hygiene & Wellbeing

 

Services and Products

 

Rentokil Initial’s Hygiene & Wellbeing segment offers a range of services both “inside” and “outside” the washroom. Rentokil Initial’s hygiene technicians provide a wide range of services to meet the enhanced expectations for hygiene, involving the following services: core washroom hygiene services by using its scale service expertise and innovations; premises hygiene services by leveraging its expertise outside the washroom such as specialist hygiene services in air care and clinical waste management; and enhanced environment services by improving the occupant experience with premium scenting, plants, air monitoring and green walls.

 

Rentokil Initial’s Hygiene & Wellbeing products for inside the washroom provide a range of innovative products for creating safer washrooms, including hand hygiene (soaps and driers), air care (purification and scenting), in-cubicle (feminine hygiene units), no-touch products and digital hygiene services. Outside the washroom, Rentokil Initial provides primarily hand hygiene products and air care products.

 

Customers

 

Rentokil Initial’s key Hygiene & Wellbeing customer segments are manufacturing, facilities management, offices and administrative, government buildings, bars and restaurants, hotels, retail and educational facilities. Rentokil Initial achieves high customer satisfaction levels and believes this is a key competitive advantage. It has account management processes in place for contacting customers at least annually to confirm service requirements are being met.

 

Workwear (France)

 

Services and Products

 

Rentokil Initial’s Workwear (France) segment specialises primarily in the supply and laundering of workwear, uniforms, cleanroom garments and personal protective wear in France. Rentokil Initial’s strategy in Workwear (France) is aimed at creating a business that has a clear market differentiation through the highest level of product and service quality by focusing on rigorous application of key performance indicators to measure quality of service, using radio-frequency and identity tags to improve service accountability, utilising highest standards in washing and repair quality (including quality of detergents), being responsive to customer needs, dedicating a separate team to focus on innovation of services and products and leveraging existing supply chain, research and development, processing, sales and marketing from the Pest Control and Hygiene & Wellbeing segments.

 

Customers

 

Rentokil Initial supports some of France’s largest hospitality and industrial organisations to ensure that their colleagues have the right workwear to support safe and effective working environments.

 

Breakdown of Revenue

 

The breakdown of revenue (by amount) from services in the six months ended 30 June 2022 and 30 June 2021, and years ended 31 December 2021, 31 December 2020 and 31 December 2019 was as follows:

 

   For the six months
ended 30 June (£m)
 
Division  2022   2021 
Pest Control   1,086.4    933.4 
Hygiene & Wellbeing   392.5    437.8 
Workwear (France)   89.8    79.7 
Central and regional overheads   2.5    2.1 
Disposed businesses   0.9    1.7 
Total   1,572.1    1,454.7 

 

57 

 

 

   For the year ended
31 December (£m)
 
Division  2021   2020   2019 
Pest Control   1,933.4    1,703.9    1,734.8 
Hygiene   660.1    735.0    543.7 
Protect & Enhance (including Workwear (France))   355.9    346.2    397.7 
Central and regional overheads   4.5    4.3     
Disposed businesses   2.7    13.9    38.2 
Total   2,956.6    2,803.3    2,714.4 

 

3.Current trading and prospects

 

For a description of Rentokil Initial plc’s current trading and prospects, please see paragraph 12 of Part VI (Letter from the Chairman of Rentokil Initial) of this document.

 

4.Market overview

 

The global pest control market size was approximately US$20 billion in 2019 and is projected to reach US$32 billion by 2027, exhibiting a CAGR of 6.31 per cent. during the forecast period. The global pest control market is highly fragmented. Pest control is a non-discretionary and essential service protecting public health, and demand for the service is driven by increasing populations, urbanisation, globalisation and changing demographics and rising hygiene standards in each of Rentokil Initial’s key regions (North America, Europe (including Latin America), UK & Sub-Saharan Africa, Asia & MENAT and Pacific). Stricter regulations and technology developments are important factors contributing to the growth of the global pest control market.

 

It is difficult to estimate the total market size for hygiene and wellbeing as the services and products in this market are fragmented. The global hygiene and wellbeing industry comprises hygiene service providers, consumables suppliers (such as the supply of paper and soap) and total facilities management operators who provide various services including hygiene. However, there are segments of the hygiene and wellbeing market that have more clearly outlined values, including: (i) the global smart washrooms market, which is estimated to be approximately US$6.9 billion by 2026 with an estimated compound annual growth rate of 15.7 per cent. from 2020 to 2026; (ii) the global air care market, which is estimated to reach over US$19 billion by 2026 and is expected to deliver a 12 per cent. compound annual growth rate from 2021 to 2026; and (iii) the global corporate wellness market, which was valued at US$52.8 billion in 2020 and is expected to grow at a 7.0 per cent. compound annual growth rate from 2021 to 2028 to a value of US$93.4 billion. Hygiene is an essential, non-discretionary service protecting public health and Rentokil Initial believes its medium-term opportunities are enhanced by rising demand for global hygiene driven by population growth, growth in air purification and hand sanitiser markets, rise of the millennial generation population that is highly focused on health and wellbeing, urbanisation, increasing legislation driving improved hygiene standards and a rising global middle class with increasing hygiene standards and growing health consciousness.

 

58 

 

 

PART VIII

 

INFORMATION ON TERMINIX

 

Investors should read this Part VIII (Information on Terminix) in conjunction with the information contained elsewhere in this document including Part I (Risk Factors) of this document. Where stated, financial information in this Part VIII (Information on Terminix) has been extracted from Part XI (Historical Financial Information on Terminix) of this document.

 

1.Overview

 

Terminix is a leading provider of residential and commercial pest control services, specialising in protection against termite damage, rodents, insects and other pests. Organised in Delaware in 2007, Terminix is the successor to various entities dating back to 1927 and is headquartered in Memphis, Tennessee and has operations in 24 countries and territories. Terminix makes over 50,000 home and business visits every day.

 

Terminix has scale and deep presence in the US and for the year ended 31 December 2021, 93 per cent. of Terminix’s revenue was generated by sales in the US and approximately 90 per cent. of the book value of its assets is located in the US. For the year ended 31 December  2021, Terminix recorded revenue of US$2.0 billion and net income of US$125 million. For the six months ended 30 June 2022, Terminix recorded revenue of US$1.1 billion and net income of US$21 million.

 

Terminix operates three service lines: Residential Pest Management, Commercial Pest Management and Termite and Home Services. Over 80 per cent. of Terminix’s revenue comes from customers who enter into contracts with the option to renew periodically (e.g. annually, monthly or quarterly). A significant percentage of its revenue is concentrated in the southern and western regions of the US, with California, Texas and Florida collectively accounting for approximately one-third of Terminix’s revenues in 2021.

 

2.Key principal activities and strategy

 

Residential Pest Management

 

Services and Products

 

Terminix’s residential pest management service line delivers comprehensive pest control services to protect people’s homes. The majority of residential pest management services are started and completed within one day. This includes services such comprehensive interior and exterior inspection advising customers on preventative measures or suitable methods of treatment, and undertaking a program of treatments using pest control equipment or chemicals to control and eliminate the target pests. Terminix offers 24 hour customer support. Recurring plans provide a guarantee for additional treatment if pests return to the property.

 

Customers

 

Residential pest management services are provided on both a one-time and recurring basis.

 

Commercial Pest Management

 

Services and Products

 

Terminix’s commercial division offer industry solutions in the retail, restaurant, hospitality, property management, manufacturing and warehouse, healthcare facilities, food processing and government sectors. For many commercial facilities, pest management is essential to regular operations and regulatory compliance (e.g., food processing, hotels, restaurants and healthcare facilities). The majority of commercial pest management services are started and completed within one day.

 

Customers

 

Commercial pest management services are largely provided by Terminix on a recurring basis to both individual businesses and national accounts customers which have a presence across a country and often require a consolidated single pest solution. Each national accounts customer has a dedicated account manager who works with them to develop a bespoke pest control plan to protect their business.

 

59 

 

 

Termite and Home Services

 

Services and Products

 

Terminix’s termite technicians eradicate termites through the use of baiting systems and non-baiting methods (such as fumigation or liquid treatments). Termite services using liquid and baiting systems are sold through renewable contracts. Terminix also offers other related services, including wildlife exclusion, crawl space encapsulation and attic insulation, which may be one-time or renewable services.

 

Customers

 

Typically, termite services require an initial inspection and the installation of a protective bait station or liquid barrier surrounding the home. Termite contracts can be either service contracts or protection plans. Protection plan contracts provide a guarantee for the repair of new damage resulting from termite infestation. After the initial term, typically one year, a customer has the option to renew the contract at a significantly reduced cost that extends the guarantee. Consequently, revenue generated from a renewal customer is less than revenue generated from a first-year termite customer.

 

3.Breakdown of Revenue

 

The breakdown of Terminix’s revenue (by amount) from services in the six months ended 30 June 2022 and 30 June 2021, and the years ended 31 December 2021, 31 December 2020 and 31 December 2019 was as follows:

 

   For the six months
ended 30 June (US$m)
   For the year ended
31 December (US$m)
 
Division  2022   2021   2021   2020   2019 
Residential Pest Management   382    358    738    706    683 
Commercial Pest Management   273    270    549    522    441 
Termite and Home Services   376    354    654    633    607 
Sales of Products and Other   51    50    104    100    88 
Total   1,081    1,032    2,045    1,961    1,819 

 

4.Current trading and prospects

 

For a description of Terminix’s current trading and prospects, please see paragraph 12 of Part VI (Letter from the Chairman of Rentokil Initial) of this document.

 

5.Market overview

 

For a description of the pest control market, please see paragraph 4 of Part VII (Information on Rentokil Initial) of this document.

 

60 

 

 

PART IX

 

SUMMARY OF THE KEY TRANSACTION TERMS

 

1.The Merger Agreement

 

Pursuant to the terms of the Merger Agreement, on Completion, all Terminix Shares will be converted automatically into the right to receive approximately US$1.3 billion in cash and approximately 129 million New Rentokil Initial ADSs (each New Rentokil Initial ADS representing five Rentokil Initial Shares) in aggregate. Terminix Shareholders may elect to receive all cash or all stock consideration with respect to each Terminix Share (other than certain excluded Terminix Shares described in the Merger Agreement), subject to allocation and proration provisions in the event of oversubscription.

 

The Transaction will take place by way of a statutory merger under the laws of Delaware, pursuant to which Merger Sub I, a Delaware corporation and an indirect wholly owned subsidiary of Rentokil Initial plc, will merge with and into Terminix Holdings, with Terminix Holdings surviving the merger. Terminix Holdings will then merge with and into Merger Sub II, a Delaware limited liability company and an indirect wholly owned subsidiary of Rentokil Initial plc, with Merger Sub II surviving as an indirect wholly owned subsidiary of Rentokil Initial plc.

 

No fractional New Rentokil Initial ADSs will be issued to any Terminix Shareholder. Any Terminix Shareholder otherwise entitled to receive a fractional New Rentokil Initial ADSs will be entitled to receive a cash payment, without interest, in lieu of any such fractional share, in an amount (rounded down to the nearest cent) representing such holder’s proportionate interest in the net proceeds from the sale in the market by the Exchange Agent on behalf of all holders of fractional New Rentokil Initial ADSs that would otherwise be issued.

 

1.1Conditions

 

Rentokil Initial shall not be obliged to complete the Transaction if any of the Conditions have not been met, or have not been waived, if applicable. These include:

 

(a)Rentokil Initial Shareholder approval:

 

(i)Rentokil Initial Shareholder approval of the Resolutions by a majority of Rentokil Initial Shareholders attending, whether in person or by proxy, and voting at the Rentokil Initial General Meeting;

 

(b)Terminix Shareholder approval:

 

(i)adoption of the Merger Agreement by the holders of a majority of the outstanding Terminix Shares entitled to vote at the Terminix Special Meeting;

 

(c)admission of New Rentokil Initial Shares to listing on the London Stock Exchange’s main market for listed securities and New Rentokil Initial ADSs on the NYSE:

 

(i)approval of the FCA and the London Stock Exchange for admission of the New Rentokil Initial Shares to the premium listing segment of the Official List of the FCA and to trading on the main market for listed securities of the London Stock Exchange, respectively, subject only to the issue of such New Rentokil Initial Shares upon Completion; and

 

(ii)approval for listing on the NYSE of the New Rentokil Initial ADSs issuable to Terminix Shareholders as the share portion of the Merger Consideration (subject to official notice of issuance); and

 

(d)registration statements declared effective by the SEC:

 

(i)declaration by the SEC of the effectiveness of the registration statements filed on Form F-4 and Form F-6 relating to the New Rentokil Initial Shares and New Rentokil Initial ADSs, respectively, to be issued as the share portion of the Merger Consideration (and the absence of any stop order suspending the effectiveness of such registration statements or any proceedings seeking such a stop order pending. before the SEC); and

 

(e)other conditions:

 

(i)the approval of this document by the FCA and the mailing of this document, in accordance with applicable rules and regulations;

 

(ii)absence of any injunction or other judgment or law entered, enacted, promulgated, enforced or issued by any court or other governmental entity that prevents, makes illegal or prohibits Completion;

 

61 

 

 

(iii)accuracy of the representations and warranties made in the Merger Agreement by Terminix Holdings, subject to certain exceptions and materiality standards provided in the Merger Agreement;

 

(iv)performance, in all material respects of the obligations required under the Merger Agreement to be performed by Terminix Holdings at or prior to Completion; and

 

(v)receipt of a certificate from an executive officer of Terminix Holdings, confirming the satisfaction by such party of the conditions described in the preceding two bullets.

 

The Transaction was also conditional on the expiration or termination of the applicable waiting period (or extension thereof) under the HSR Act, which expired on 14 March 2022. As such, the regulatory condition to the Transaction has been satisfied. The Transaction was also conditional on completion of the Required Divestments, which occurred on 1 June 2022.

 

1.2Representations, warranties and covenants

 

Each of Rentokil Initial plc and Terminix Holdings has agreed not to solicit proposals, engage in discussions, provide non-public information or enter into any agreement or commitment, in each case, relating to certain alternative transactions. However, each party may, subject to the terms and conditions set forth in the Merger Agreement, (i) provide information to a third party that makes an unsolicited, written acquisition proposal and (ii) engage in discussions and negotiations with a third party that makes an unsolicited, written acquisition proposal, in each case, if such party’s board of directors determines in good faith (after consultation with outside legal counsel and its financial advisor) that such proposal is, or could reasonably be expected to lead to a superior proposal to the Transaction (as defined in the Merger Agreement). Under certain circumstances and upon compliance with certain notice and other specified conditions set forth in the Merger Agreement, each party’s board of directors may change its recommendation, and Terminix Holdings may terminate the Merger Agreement to accept a superior proposal.

 

The Merger Agreement contains customary representations and warranties made by each of Rentokil Initial plc, Bidco, the Merger Subs and Terminix Holdings. These include, among other matters, representations and warranties in respect of: corporate existence, good standing and qualification to conduct business; due authorisation, execution and validity of the Merger Agreement; financial statements; conduct of business in the ordinary course of business consistent with past practices and absence of changes that have had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the respective party, in each case since 30 June 2021; absence of undisclosed material liabilities; compliance with laws; litigation; tax matters (in the case of Terminix Holdings only); employees, employee benefit plans and labour matters (in the case of Terminix Holdings only); intellectual property matters (in the case of Terminix Holdings only); environmental matters (in the case of Terminix only); material contracts (in the case of Terminix Holdings only); properties (in the case of Terminix only); and insurance matters (in the case of Terminix Holdings only). Certain of the representations and warranties made by each party are qualified by disclosures that such party delivered to the other party concurrently with the execution of the Merger Agreement. Certain of the representations and warranties will also be required to be made at Completion.

 

The Merger Agreement also contains customary covenants made by each of Rentokil Initial plc, Bidco, the Merger Subs and Terminix Holdings. The Merger Agreement requires Rentokil Initial plc to call and hold a shareholders’ meeting and, subject to the ability of the Board to change their recommendation under certain specified circumstances, including as described above, requires Rentokil Initial plc’s board of directors to recommend that Rentokil Initial Shareholders approve the Resolutions. The Merger Agreement also requires Terminix Holdings to call and hold a special shareholders’ meeting (subject to Terminix Holdings’ ability to terminate the Merger Agreement to enter into a superior proposal as described above) and, subject to the ability of Terminix Holdings’ board of directors to change their recommendation under certain specified circumstances, including as described above, requires Terminix Holdings’ board of directors to recommend that Terminix Shareholders approve the Merger Agreement.

 

In addition, pursuant to the Merger Agreement, Rentokil Initial plc will take all necessary actions to cause one individual serving on Terminix Holdings’ board of directors to be appointed to the Board upon Completion. Such director will be mutually agreed by Rentokil Initial plc and Terminix Holdings prior to Completion.

 

62 

 

 

1.3Termination

 

The Merger Agreement contains certain customary termination rights for each of Rentokil Initial plc and Terminix Holdings, including the right of each party to terminate the Merger Agreement if the Transaction has not been completed on or before the Long Stop Date, subject to an extension by either party to the Extended Long Stop Date if, on the Long Stop Date, antitrust-related Conditions are not satisfied but all other Conditions have been satisfied or waived (other than Conditions that can only be satisfied immediately prior to Completion). The extension can be requested by either Rentokil Initial plc or Terminix Holdings, save that such extension (as well as the related right of termination upon expiration of the Long Stop Date) cannot be requested by a party whose material breach of the Merger Agreement is the proximate cause of the failure to close the transaction by the Long Stop Date.

 

Pursuant to the Merger Agreement, Rentokil Initial plc will be entitled to receive, by way of compensation, a termination payment of US$50 million from Terminix Holdings, subject to certain specified conditions, in the event that Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because the required approval of the Terminix Shareholders is not obtained. The termination payment is subject to:

 

(a)the Rentokil Initial Shareholders approving the Transaction at the Rentokil Initial General Meeting; or

 

(b)(A) the Rentokil Initial Shareholders not approving the Transaction at the Rentokil Initial General Meeting, (B) Rentokil Initial plc having reasonably cooperated and used its commercially reasonable efforts to cause the Rentokil Initial General Meeting to occur on the same day as the Terminix Special Meeting and (C) more than 24 hours having passed since the required approval of the Terminix Shareholders not being obtained.

 

Pursuant to the Merger Agreement, if the Merger Agreement is terminated, Rentokil Initial plc will be entitled to receive, by way of compensation, a termination payment of US$200 million, subject to certain specified conditions, from Terminix Holdings in the event that:

 

(a)prior to the approval of the Transaction by the Terminix Shareholders, Rentokil Initial plc terminates the Merger Agreement following an adverse recommendation change by Terminix Holdings, or the commencement of a takeover offer of Terminix Holdings which Terminix Holdings does not publicly reject with 10 business days;

 

(b)prior to the adoption of the Merger Agreement by the Terminix Shareholders, Terminix Holdings terminates the Merger Agreement in order to accept a superior proposal; or

 

(c)(i) Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because (A) the Long Stop Date (as may be extended) occurs and the required approval by Terminix Shareholders has not been obtained or (B) the required approval of the Terminix Shareholders is not obtained at the Terminix Special Meeting, or Rentokil terminates the Merger Agreement because of a breach by Terminix Holdings of certain warranties or obligations in the Merger Agreement, (ii) prior to such termination, a proposal for the acquisition of 50 per cent. or more of the Terminix Shares or the assets of Terminix Holdings is publicly announced or made known and not withdrawn and (iii) within 12 months after the date on which the Merger Agreement was terminated Terminix Holdings enters into a definitive agreement relating to any proposal for the acquisition of 50 per cent. or more of the Terminix Shares or the assets of Terminix Holdings that is subsequently completed or such a proposal is completed.

 

Pursuant to the Merger Agreement, Terminix Holdings will be entitled to receive, by way of compensation, a termination payment of US$50 million from Rentokil Initial plc, subject to certain specified conditions, in the event that Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because the required approval of the Rentokil Initial Shareholders is not obtained. This termination payment is subject to:

 

(a)the Terminix Shareholders adopting the Merger Agreement at the Terminix Special Meeting; or

 

(b)(A) the Terminix Shareholders not adopting the Merger Agreement at the Terminix Special Meeting, (B) Terminix having reasonably cooperated and used its commercially reasonable efforts to cause the Terminix Special Meeting to occur on the same day as the Rentokil Initial General Meeting and (C) more than 24 hours having passed since the required approval of the Rentokil Initial Shareholders not being obtained.

 

Pursuant to the Merger Agreement, if the Merger Agreement is terminated, Terminix Holdings will be entitled to receive, by way of compensation, a termination payment of US$150 million, subject to certain specified conditions, from Rentokil Initial plc in the event that:

 

(a)prior to the approval of the Transaction by the Rentokil Initial Shareholders, Terminix Holdings terminates the Merger Agreement following an adverse recommendation change by Rentokil Initial plc, or the commencement of a takeover offer of Rentokil Initial plc which Rentokil Initial plc does not publicly reject with 10 business days;

 

63 

 

 

(b)(i) Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because (A) the Long Stop Date (as may be extended) occurs and the required approval by Rentokil Initial Shareholders has not been obtained or (B) the required approval of the Rentokil Initial Shareholders is not obtained at the Rentokil Initial General Meeting, or Terminix Holdings terminates the Merger Agreement because of a breach by Rentokil Initial plc of certain warranties or obligations in the Merger Agreement, (ii) prior to such termination, a proposal for the acquisition of 50 per cent. or more of the Rentokil Initial Shares or the assets of Rentokil Initial plc is publicly announced or made known and not withdrawn prior to the meeting and (iii) within 12 months after the date on which the Merger Agreement was terminated Rentokil Initial plc enters into a definitive agreement relating to any proposal for the acquisition of 50 per cent. or more of the Rentokil Initial Shares or the assets of Rentokil Initial plc that is subsequently completed or such a proposal is completed; or

 

(c)Rentokil Initial plc or Terminix Holdings terminates the Merger Agreement because (i) the Completion does not occur by the Long Stop Date (as may be extended) due to an injunction or order related to antitrust laws, while other Conditions have been satisfied or waived, or (ii) a permanent final injunction or order related to antitrust laws prohibits the Completion.

 

1.4Treatment of Terminix Equity Awards

 

Terminix Stock Options

 

At Completion, each outstanding option to purchase Terminix Shares (each, a “Terminix Stock Option”) that is then vested and exercisable will be cancelled in consideration for the right to receive, within ten business days following Completion, an amount in cash equal to the product of (x) the excess of (1) the Vested Award Consideration, over (2) the exercise price per share of Terminix Shares subject to such Terminix Stock Option and (y) the number of shares of Terminix Shares subject to such Terminix Stock Option immediately prior to Completion, without interest and less applicable withholding taxes. Each other outstanding Terminix Stock Option will be assumed by Rentokil Initial plc and will be converted into an equivalent Rentokil Initial plc stock option, with (i) the number of Rentokil Initial ADSs underlying each converted award determined by multiplying the Equity Award Exchange Ratio by the number of shares of Terminix Shares subject to such Terminix Stock Option, rounded down to the nearest whole number, and (ii) the exercise price determined by dividing the exercise price applicable to such Terminix Stock Option by the Equity Award Exchange Ratio, rounded up to the nearest whole cent. Each assumed stock option will continue to have, and will be subject to, the same terms and conditions as applied to the corresponding Terminix Stock Option immediately prior to Completion, including any terms and conditions relating to accelerated vesting on a qualifying termination of the holder’s employment in connection with or following the merger.

 

Terminix Restricted Stock Unit Awards

 

At Completion, each outstanding restricted stock unit award with respect to Terminix Shares that vests solely based on the passage of time (each, a “Terminix RSU Award”) that is vested will be cancelled in consideration for the right to receive, within ten business days following Completion in respect of each share of Terminix Shares subject to such Terminix RSU Award immediately prior to Completion, the Vested Award Consideration, without interest and less applicable withholding taxes. Each other Terminix RSU Award will be assumed by Rentokil Initial plc and will be converted into an equivalent Rentokil Initial plc restricted stock unit award, with the number of Rentokil Initial ADSs underlying each converted award determined by multiplying the Equity Award Exchange Ratio by the number of shares of Terminix Shares subject to such Terminix RSU Award. Each restricted stock unit award will continue to have, and will be subject to, the same terms and conditions as applied to the corresponding Terminix RSU Award immediately prior to Completion, including any terms and conditions relating to accelerated vesting on a qualifying termination of the holder’s employment in connection with or following the merger.

 

Terminix Performance Stock Unit Awards

 

At Completion, each outstanding performance stock unit award with respect to Terminix Shares that vests based on the achievement of a combination of time- and performance-based vesting conditions (each, a “Terminix PSU Award”) granted prior to the date of the Merger Agreement will be assumed by Rentokil Initial plc and converted into an equivalent Rentokil Initial plc restricted unit award, with the number of Rentokil Initial ADSs underlying each converted award determined by multiplying the Equity Award Exchange Ratio by the number of shares of Terminix Shares subject to such Terminix PSU Award (determined by deeming the applicable performance goals to be achieved at the greater of (i) the target level and (ii) the actual level of achievement through the latest practicable date prior to Completion as determined by the Terminix Holdings board of directors). Each performance stock unit award will continue to have, and will be subject to, the same terms and conditions as applied to the corresponding Terminix PSU Award immediately prior to Completion, other than any performance-based vested conditions, including any terms and conditions relating to accelerated vesting on a qualifying termination of the holder’s employment in connection with or following the merger.

 

64 

 

 

Each Terminix PSU Award granted after the date of the Merger Agreement (under circumstances permitted by the Merger Agreement) will be assumed by Rentokil Initial plc and converted into an equivalent Rentokil Initial plc performance restricted unit award, with the number of Rentokil Initial ADSs underlying each converted award determined by multiplying the Equity Award Exchange Ratio by the number of shares of Terminix Shares subject to such Terminix PSU Award (determined by deeming the applicable performance goals to the achieved at the target level). Each restricted stock unit award will continue to have, and will be subject to, the same terms and conditions as applied to the corresponding Terminix PSU Award immediately prior to Completion, including any terms and conditions relating to accelerated vesting on a qualifying termination of the holder’s employment in connection with or following the merger, except that the applicable performance metrics will be adjusted in good faith by Rentokil Initial and Terminix to provide for performance metrics that are based on the Combined Group.

 

Terminix Director Deferred Share Equivalents

 

At Completion, each outstanding director deferred share equivalent award with respect to Terminix Shares (each, a “Terminix DSE Award”) will be cancelled in consideration for the right to receive, within ten business days following Completion in respect of each share of Terminix Shares subject to such Terminix DSE Awards, the Vested Award Consideration, without interest and less applicable withholding taxes.

 

2.The Transaction Facilities

 

To support the financing of the Merger Consideration, on 13 December 2021 Rentokil Initial plc entered into a mandate letter pursuant to which Barclays Bank PLC committed to provide a bridge financing facility for up to US$2.7 billion. That mandate letter was replaced with the Bridge Facility.

 

On 25 February 2022, Rentokil Initial plc entered into a committed bridge financing facility for up to US$2.7 billion with a syndicate of banks. The Bridge Facility comprised a US$2 billion term loan referred to as Facility A and a US$700 million term loan referred to as Facility B. Facility A was refinanced and cancelled in full on 30 June 2022, following the issuance of the New Senior Notes. Facility B is available to be utilised by Rentokil Initial plc from the date of approval of the Transaction by Rentokil Initial Shareholders, subject to satisfaction of a limited number of customary conditions precedent. Facility B, in addition to the proceeds from the issuance of the New Senior Notes, is intended to contribute to the financing of the cash portion of the Merger Consideration, the refinancing of existing Terminix Holdings debt and associated acquisition costs.

 

The termination date for Facility B is the third anniversary of the first utilisation date under the Bridge Facility.

 

Facility B contains: (i)  certain mandatory prepayment and cancellation provisions in relation to borrower illegality and change of control of Rentokil Initial plc; and (ii) provisions allowing Rentokil Initial plc to replace or cancel the commitments of a lender to whom additional amounts are required to be paid in respect of the increased costs, tax gross-up or tax indemnity clauses. Facility B does not contain any financial maintenance covenants.

 

Facility B has an interest rate linked to SOFR. The initial margin is 0.60 per cent per annum but is subject to a margin ratchet ranging from 0.50 per cent. to 1.00 per cent.

 

There is a commitment fee on unutilised, uncancelled amounts of Facility B. There is no commitment fee from and including the date of the Bridge Facility to and including the date falling three months after the date of the Bridge Facility, then the commitment fee rises to 20.00 per cent. per annum of the applicable margin from and including the day falling immediately after the date falling three months after the date of the Bridge Facility to and including 30 June 2022 and then the commitment fee rises to 30.00 per cent. per annum of the applicable margin from and including 1 July 2022 to and including the last day of the Availability Period.

 

Facility B contains customary representations and undertakings, including (with certain agreed carve-outs) a negative pledge and acquisition-related undertakings.

 

Facility B also contains customary events of default, including non-payment, misrepresentation, cross default and insolvency, the occurrence of any of which would allow the lenders to cancel the commitments and declare any loans immediately due and payable. The events of default are subject to certain agreed carve-outs.

 

As at the Latest Practicable Date, Facility B is undrawn.

 

On 27 June 2022, Rentokil Initial plc and RI BV issued the New Senior Notes under Rentokil Initial’s EMTN Programme raising proceeds of £400 million and €1.45 billion. The New Senior Notes include an optional acquisition redemption option. If the Transaction is not completed on or before 13 March 2023 or Rentokil Initial plc publicly announces on or before 13 March 2023 that it no longer intends to pursue the Transaction, the relevant series of EMTN Notes may be redeemed (in whole but not in part) by the relevant issuer upon expiry of the requisite period of notice at the acquisition event early redemption amount specified in the relevant pricing supplement, together with accrued interest. The proceeds of the New Senior Notes have been converted to US$2.0 billion using hedging instruments.

 

65 

 

 

PART X

 

CAPITALISATION AND INDEBTEDNESS OF RENTOKIL INITIAL

 

Indebtedness

 

The following table sets out the indebtedness of Rentokil Initial plc as at 30 June 2022. The indebtedness information has been extracted without material adjustment from Rentokil Initial plc’s unaudited consolidated interim financial statements for the six months ended 30 June 2022 which are incorporated by reference into, and form part of, this document.

 

   As at 
   30 June 2022 
   (£ million) 
Total current debt     
Guaranteed    
Secured    
      
Unguaranteed/Unsecured   (102.4)
      
    (102.4)
      
Total non-current debt (excluding current portion of long-term debt)     
Guaranteed    
Secured    
Unguaranteed/Unsecured   (3,134.7)
      
    (3,134.7)
Total indebtedness   (3,237.1)

 

This statement of indebtedness has been prepared under IFRS using policies which are consistent with those used in the preparing Rentokil Initial plc’s financial statements for the year ended 31 December 2021.

 

Capitalisation

 

The following table sets out the capitalisation of Rentokil Initial plc as at 30 June 2022. The information has been extracted without material adjustment from Rentokil Initial plc’s unaudited consolidated interim financial statements for the six months ended 30 June 2022 which are incorporated by reference into, and form part of, this document.

 

   As at 
Shareholders’ equity   30 June 2022 
   (£ million) 
Share capital   18.6 
Share premium   6.8 
Other reserves   (1,781.7)
Total capitalisation   (1,756.3)

 

There has been no material change in the capitalisation of Rentokil Initial plc since 30 June 2022.

 

66 

 

 

Net Indebtedness

 

The following table sets out the net indebtedness of Rentokil Initial plc as at 30 June 2022. The information has been extracted without material adjustment om Rentokil Initial plc’s unaudited consolidated interim financial statements for the six months ended 30 June 2022 which are incorporated by reference into, and form part of, this document.

 

Cash and indebtedness     
Cash (1)   959.7 
Cash equivalents   1,411.4 
Other current financial assets   3.7 
Total liquidity   2,374.8 
Current bank debt   (602.5)
Current portion of noncurrent debt    
Other current financial debt   (83.2)
Current financial debt   (685.7)
Net current financial indebtedness   1,689.1 
Non-current bank loans   (2.4)
Bonds issued   (2,915.8)
Other non-current loans   (216.5)
Non-current financial indebtedness   (3,134.7)
Net financial indebtedness   (1,445.6)

 

This statement of net indebtedness has been prepared under IFRS using policies which are consistent with those used in the preparing Rentokil Initial plc’s financial statements for the year ended 31 December 2021.

 

(1)  As at 30 June 2022 Rentokil Initial plc had restricted cash of £8.6 million. Rentokil Initial plc had no indirect or contingent indebtedness as at 30 June 2022.

 

67 

 

 

PART XI

 

HISTORICAL FINANCIAL INFORMATION ON TERMINIX

 

SECTION A—CONSOLIDATED HISTORICAL FINANCIAL INFORMATION RELATING TO TERMINIX

 

This Section A of Part XI (Historical Financial Information on Terminix) of this document contains consolidated historical financial information extracted without material adjustment from Terminix Holdings’ Quarterly Report on Form 10-Q for the six month period ended 30 June 2022 and the audited consolidated historical financial statements of Terminix for the three financial years ended 31 December 2021, 31 December 2020 and 31 December 2019, which has been prepared in accordance with US GAAP.

 

Unaudited consolidated financial statements for the six months ended 30 June 2022

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) (In millions, except per share data)

 

   Six Months 
   Ended 30 June 
US$  2022   2021 
Revenue   1,081    1,032 
Cost of services rendered and products sold   636    588 
Selling and administrative expenses   287    280 
Amortization expense   20    19 
Acquisition-related costs       (1)
Mobile Bay Formosan termite settlement       4 
Restructuring and other charges   33    9 
Loss on sale of international subsidiaries   41     
Interest expense   23    23 
Interest and net investment income   2    (1)
Income before Income Taxes   39    110 
Provision for income taxes   21    31 
Equity in earnings of joint ventures   3    2 
Net Income   21    81 
Other Comprehensive Income, Net of Income Taxes:          
Net unrealized gains on derivative instruments   30    11 
Foreign currency translation gain       5 
Other Comprehensive Income, Net of Income Taxes   29    17 
Total Comprehensive Income   50    97 
           
Weighted-average common shares outstanding—Basic   121.5    129.3 
Weighted-average common shares outstanding—Diluted   121.7    129.8 
Basic Earnings Per Share:          
Net Income   0.17    0.62 
Diluted Earnings Per Share:          
Net Income   0.17    0.62 

 

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

 

68 

 

 

Condensed Consolidated Statements of Financial Position (In millions, except share data)

 

   (Unaudited) 
   As of 30 June, 
US$  2022   2021 
Assets:          
Current Assets:          
Cash and cash equivalents   277    313 
Receivables, less allowances of US$30 and US$32, respectively   213    208 
Inventories   45    42 
Prepaid expenses and other assets   163    167 
Total Current Assets   698    730 
Other Assets:          
Property and equipment, net   183    177 
Operating lease right-of-use assets   72    80 
Goodwill   2,107    2,168 
Intangible assets, primarily trade names, service marks and trademarks, net   1,051    1,104 
Restricted cash   89    89 
Notes receivable   38    32 
Long-term marketable securities   12    15 
Deferred customer acquisition costs   102    96 
Other assets   134    76 
Total Assets   4,486    4,567 
Liabilities and Stockholders’ Equity:          
Current Liabilities:          
Accounts payable   122    113 
Accrued liabilities:          
Payroll and related expenses   73    90 
Self-insured claims and related expenses   73    70 
Accrued interest payable   7    7 
Other   107    100 
Deferred revenue   99    110 
Current portion of lease liability   17    17 
Current portion of long-term debt   47    44 
Total Current Liabilities   544    552 
Long-Term Debt   846    834 
Other Long-Term Liabilities:          
Deferred taxes   396    363 
Other long-term obligations, primarily self-insured claims   173    215 
Long-term lease liability   91    95 
Total Other Long-Term Liabilities   660    673 
Stockholders’ Equity:          
Common stock US$0.01 par value (authorized 2,000,000,000 shares with 149,359,858 shares issued and 121,523,419 outstanding at June 30, 2022 and 148,400,384 shares issued and 125,271,848 shares outstanding at June 30, 2021)   2    2 
Additional paid-in capital   2,403    2,379 
Retained earnings   988    922 
Accumulated other comprehensive income (loss)   8    (22)
Less common stock held in treasury, at cost (27,836,439 shares at June 30, 2022 and 23,566,220 shares at June 30, 2021)   (964)   (773)
Total Stockholders’ Equity   2,436    2,508 
Total Liabilities and Stockholders’ Equity   4,486    4,567 

 

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

 

69 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In millions)

 

                   Accumulated        
               Retained   Other             
           Additional   Earnings   Comprehensive             
       Common   Paid-in   (Accumulated   Income (Loss)   Treasury   Total 
   Shares   Stock   Capital   Deficit)   Income   Shares   Amount   Equity 
Balance December 31, 2020   148    2    2,359    841    (39)   (16)   (423)   2,741 
Net income               27                27 
Other comprehensive income, net of tax                   22            22 
Total comprehensive income               27    22            49 
Issuance of common stock           1                    1 
Exercise of stock options           4                    4 
Stock-based employee compensation           6                    6 
Repurchase of common stock                       (4)   (169)   (169)
Balance March 31, 2021   149    2    2,370    868    (17)   (20)   (592)   2,631 
Net income               54                54 
Other comprehensive income, net of tax