Mitie cuts the price of its Interserve facilities management takeover after claims of shareholder pressure

Contract cleaning and maintenance giant Mitie today slashed the price of its £270 million takeover of Interserve’s facilities management business to £190 million.

Mitie’s shares had fallen sharply on news of the deal and the associated fundraiser it needed to pay for it.

The transaction is paid for in a mixture of cash and shares and Mitie today cut the number of shares in the merged group that Interserve’s investors will be getting. 

That has the effect of reducing the overall value of the deal by around 10%, according to analysts. 

Mitie said the reduction was to reflect that it had been winning more new business than Interserve in the interim.

Market sources said, however, that while Interserve has lost some private sector contract renewals, its public sector business has been extremely strong. 

Some analysts therefore said Mitie may have cut the shares element after coming under pressure from its shareholders to do so.

Mitie had said a year earlier that it wanted to buy the business for around £100 million - £70 million less than it eventually paid.

Interserve investors were prepared to accept the new terms in the expectation that Mitie’s shares will perform strongly in the coming months, making up for the shortfall. They refused to accept any reduction in the cash element of the deal.

Phil Bentley, chief executive of Mitie, said: "Reassuringly both Mitie and Interserve Facilities Management have traded better than expected during the COVID crisis.  

 “However, Mitie, in particular, has been successful at renewing strategic contracts and winning new business during this period. 

"Recognising this momentum, we have renegotiated the terms of the Interserve Facilities Management transaction, reducing the vendor's consideration shares by 31%  to 248m shares, valuing the current consideration at £190m. ”

Mitie's existing shareholders will now hold an 82.5% shareholding in the enlarged group instead of the 76.6% previously agreed. 

Bentley said an additional £5 million of cost synergies had been found, bringing the total up to £35 million by the end of the 2022 financial year.

For Mitie, the deal brings it crucial public sector contracts with high margins such as running complex Ministry of Defence facilities on Salisbury Plain, the Falkland Islands and Cyprus. 

These will reduce Mitie’s reliance on private sector work which suffers from Covid-19 lockdowns and the associated economic impact.