Wolseley Plc will book a pre-tax loss of 175 million pounds ($262 million) as a result of its decision to sell 51% of Stock Building Supply to a private equity firm, the company revealed as part of its announcement today. It also said the deal excludes Stock's construction lending service, which it intends to keep and shrink as part of a potential future sale.
The new joint venture with The Gores Group helps U.K.-based Wolseley shed what has become an American albatross. In the six months through Jan. 31--the first half of its current fiscal year--Stock's revenue fell 25.5% to $1.34 billion, leading the company to record an operating loss of $129 million. Its employee count has shrank from 13,000 at the end of 2007 to about 8,700 at the end of 2008. In July 2008 it had 285 locations; now it has roughly 200. In addition, four distribution centers have been closed.
Stock provided about 10% of Wolseley's worldwide revenues but a much higher share of its financial woes. It has sought in recent years to find ways to ease that burden and yet keep an investment in Stock that presumably would pay off when the American housing market rebounds.
Wolseley said that Stock will be reconstituted as a new business separate from Wolseley, and that Wolseley's 49% interest in Stock will be recognized as an equity interest in an associate company. That move will help Wolseley stay within banking covenants that limit it to a net debt of no more than 3.5 times operating earnings. Last month, Wolseley's shareholders approved a proposal to raise 1.05 billion British pounds ($1.5 billion) through the sale of new shares. The move was designed to help the company avoid defaulting on loans that have been strained in large part due to Stock's enormous losses in recent years.
Today, after the deal, Wolseley said its consolidated financial accounts for the current fiscal year, which ends July 31, will contain a pre-tax exceptional loss on disposal "and is not expected to exceed 175 million pounds" ($262 million).
Wolsely also noted that the deal with The Gores Group excludes Stock's construction lending arm. Wolslely said it has slowly been winding down that business as the housing market tanked, but as of Jan. 31 it still had $391 million worth of construction loans outstanding.
"The construction loans business, which employs 54 people, has been excluded from the transaction and will be retained by Wolseley," the company said. "The Group intends to continue to operate the business but to effect a phased reduction in the portfolio over the next two to three years. It expects to continue to undertake selective lending to allow for an orderly reduction in the scope of the business. The portfolio will also be reduced through a phased withdrawal from selected markets to position the business for a possible future sale. Consequently, the majority of the construction loan management team will be retained."