News

Rentokil Initial is buying Target Express debt-free for £210m cash.

The agreed bid last week is the biggest ever in the UK parcels sector and will take Rentokil's parcels turnover to around £400m. That puts it in fourth place behind DHL, TNT and UPS, moving ahead of Parcelforce.

Group chief executive Doug Flynn said the deal gives a strong market position with the prospect of strong, sustainable, profitable growth.

Target will operate separately from City Link, the established  Rentokil brand, until summer 2007 when operational integration will start. The chief executives are staying on, for the time being at least.

City Link, with a turnover of £240m in 2005, is a star performer in the sector with an operating profit of £29m Target made £17.3m operating profit on £146.1m but has been held back by debt.

Industry insiders said the deal, while a surprise, looks like a good fit. City Link deals mostly with small-to-medium sized customers, Target with large shippers. Similarities are drawn with GeoPost's Interlink and Parceline.

City Link was touted for sale under Rentokil's previous top management Target made no secret that it would seek an exit route in 2007. Prospects of a share flotation receded as the market got tougher.

The Rentokil offer, at what looks like a full price, gives the company the potential to be a formidable competitor.

Culturally, one of the major differences is in Target's use of sub-contractors to deliver  parcels and to provide traction for trunking. City Link has been bringing its franchised operations in-house and aims to complete the process, with 13 depots still to acquire, by next summer.

Key decisions will centre on the choice of IT platform and future top management.