British newspapers are reporting today that Wolseley Plc, the giant U.K.-based materials distributor and parent company of America's No. 2 LBM company, Stock Building Supply, is exploring the idea of raising up to 400 million pounds sterling ($593 million) to strengthen its balance sheet.
The Financial Timesreported that Wolseley chief executive Chip Hornsby is acting under pressure from investors "to ensure the company can survive the downturn without breaching banking covenants." The online version of London's Times also said Hornsby is working on what it called a "rescue fundraising" of between 200 million and 400 million pounds. The Timesreported that Hornsby is talking with investors as well as with private-equity groups.
"A final decision on how much is required and whether to proceed will be made in the next three weeks at the end of its financial half-year," the Times said. The Financial Times also said Hornsby has been talking to current shareholders and potential investors about subscribing to new share issues, but has yet to decide how to proceed. A decision could come soon, as Wolseley is expected to give another interim statement in a week.
In the United States, a spokeswoman for Stock said the company had no comment.
While Wolseley's problems can be traced to the worldwide slowdown in construction, it has been hurt particularly hard by the housing crash in the United States. In September, Wolseley announced Stock had recorded an operating loss of $246 million in the year ended July 31, 2008. This year's fiscal first quarter was no better: an operating loss of around $60 million for the three months ended Oct. 31, 2008. That came on a 20% decline in sales and was 10 times worse than it posted in the year-earlier quarter.
As with Wolseley's other properties around the world, the company has shed workers and yards. On Oct. 23, Stock declared it would close 86 facilities, cut 3,000 jobs, and exit 16 markets in six states, leaving it little more than half the size it was at the housing market's peak. (See list.) In a conference call earlier this month to promote a housing rescue package, Stock president Joe Appelmann said Stock has slashed 9,000 jobs nationwide, or 52% of its total work force, since the fall of 2006. It had about 384 branches at its peak. Now it has closer to 200 locations.
Stock ranks No. 2 on the 2008 ProSales 100 list of America's largest LBM operations, with sales of $4.71 billion in 2007, 94% of them to pros.