* Offer of $97.50/share, a 19 pct premium to Monday close
* Cintas price fair price, deal a smart financial move-analyst
* Cintas to boost presence in U.S. Canada, save costs
* Both companies’ stocks hit record highs (Adds details, updates shares)
Aug 16 (Reuters) - Cintas Corp, which provides uniforms and related services to a variety of industries, said it would buy smaller rival G&K Services Inc for about $2.2 billion, including debt, to strengthen its presence in North America.
G&K shares jumped as much as 18.5 percent to a record high of $97.35, just shy of Cintas’s all-cash offer of $97.50 per share. Cintas stock rose 9.5 percent to an all-time high of $117.65 on Tuesday.
Cintas said the combined company will provide more than 1 million business customers with uniforms, floor care, restroom supplies, first aid and safety products, as well as safety and compliance training.
The company said the deal will give it access to additional processing capacity and increase its route density, which in turn will improve service and significantly lower costs.
Northcoast Research analyst John Healy said Cintas paid a fair price and over time the deal would prove to be a smart financial move.
“We have thought for a long time that further consolidation in the uniform rental space would make a tremendous amount of financial sense,” Healy said.
Minnesota-based G&K serves more than 170,000 customers in the healthcare, transportation and manufacturing industries in about 165 locations in the United States and Canada.
G&K reported record earnings per share and cash flow for fiscal 2016. Its sales have risen each quarter for the past three years, while Cintas is coming off a streak of five quarters of sales growth, according to Thomson Reuters data.
Cincinnati-based Cintas will pay $1.93 billion in cash, according to Reuters calculations. G&K’s long-term debt, net of current maturities, stood at $240.45 million as of March 26.
The deal is expected to generate annual savings of $130 million to $140 million, realized in the fourth year after closing, Cintas said.
The company said it expects the deal to add to profit in the second year after closing, expected in the next four to six months.
Cintas expects to finance the deal through existing cash, the assumption of G&K’s debt, and new debt.
KeyBank National Association, which gave Cintas a fairness opinion on the deal, and JPMorgan Chase Bank have provided the company with a fully committed bridge credit facility.
Jones Day and Keating Muething & Klekamp PLL acted as legal counsel to Cintas.
BofA Merill Lynch was G&K’s exclusive financial adviser and Weil, Gotshal & Manges LLP and Stinson Leonard Street LLP its legal advisers. (Reporting by Rishika Sadam and Rachit Vats in Bengaluru; Editing by Savio D’Souza)