Buyout Talk Sends Rentokil Wider
Rentokil Initial, a U.K.-based hygiene and security company, was the center of credit-default swap buying last week, as traders positioned for spread widening in response to talk of a leveraged buyout.
Traders said most hedge funds had been short the name for several weeks, in anticipation it might be a likely target for a buyout. Funds were short at 70 bps and there was some profit taking when the spread hit 100 bps mid-week, said a trader at a German firm. There was two-way flow throughout the week, he added, and even following an announcement last Friday Raphoe Management was not ready to put in a bid, there were still players positioning for an event within the next few weeks.
Gavan Nolan, analyst with Markit Partners in St. Albans, Hertfordshire, said the cash piles private equity firms are sitting on are driving a lot of leverage buyout reports and Rentokil has been caught up in the rumor mill. Rentokil spreads could well pull in over the next week or so if a bid fails to materialize, he added.