Rat-catcher Rentokil cleans up with German merger partner

One of the main corporate beneficiaries of the post-referendum slide in sterling is placing a huge bet on Europe by forming a new venture with a continental peer.

Sky News has learnt that Rentokil Initial (Other OTC: RKLIF - news) , the support services group, has agreed a deal to combine parts of its workwear and hygiene units with Haniel, a privately owned German company.

The deal is likely to be announced on Friday and will result in a cash windfall for the British company of about 500m euros (£420m), according to City sources.

The remainder of Rentokil's operations will be unaffected by the tie-up.

It will be one of the biggest strategic moves made by Rentokil - best-known for its pest control division - for years, as it seeks to focus efforts on higher-margin operations.

The company collects, cleans and returns more than 100m items of workwear annually through its Initial brand.

A source said the joint venture with Haniel would involve Rentokil's workwear business in 10 countries in the Benelux, central and eastern Europe, while 17 national operations of the German company would also be involved.

Rentokil will own about 20% of the new entity.

The deal will come several months after Rentokil said its annual profits were likely to surge because of the weakness of sterling.

Under Andy Ransom, its chief executive since 2013, and his predecessor Alan Brown, Rentokil's fortunes have been revived in the wake of a long slump.

Bank of America Merrill Lynch and Barclays (LSE: BARC.L - news) , Rentokil's corporate brokers, are understood to be advising the company on the deal.

A Rentokil spokesman declined to comment.

The company's shares closed up 2.6% on Thursday at 211.3p, giving it a market capitalisation of £3.77bn.