Wolseley Plc, the British-based parent of America's Stock Building Supply, confirmed today it is considering a rights issue to raise what press reports said could be as much as 1.2 billion pounds ($1.7 billion)--an initiative that some analysts say might not be enough to save the company without also closing Stock. Meanwhile, some Stock employees in the U.S. have written ProSales coming to their company's defense.
"The board of Wolseley confirms that discussions have been held to consider the merits of an issue of new equity and any decisions will be communicated to shareholders through the appropriate channels at the appropriate time," Wolseley said in a statement reported by several U.K.-based news agencies. Wolseley's stock is worth about 1.2 billion pounds, but its debt now totals 3 billion pounds, the reports said.
A Goldman Sachs analysis that became public earlier this week opined that, unless banks ease their lending covenants, Wolseley will need to close Stock, America's No. 2 LBM operation. On Wednesday, The Independent of London quoted Howard Seymour, an analyst at Numis Securities in London, as saying that a rights issue without definitive action on Stock is unlikely to be successful.
"We calculate that in order to stay comfortably within its banking covenants, Wolseley will need to issue between 750 million and 1 billion pounds of equity and close its loss-making Stock business," Goldman's said, while lowering its rating on Wolseley to "sell" from "neutral." A rights issue typically gives current stockholders the right to acquire future shares of a company at below-market rates. Such rights give a company vital cash now, but it ultimately dilutes the value of shares.
Goldman said that a rights issue by itself would only narrowly push Wolsley back into compliance with its banking covenants, leaving it little room to maneuver and no ability to buy weaker competitors. At the same time, "the benefit from closing a loss-making business (i.e. Stock) would more than offset any potential dilution from an equity issue in the near term, but would remove the longer-term benefits that would have accrued from the eventual upswing in the U.S. residential markets."
In January, Wolseley announced that Stock recorded an operating loss of $110 million for September through December 2008, double what it did a year before. In October, Stock launched a $225 million restructuring effort in which it closed 86 facilities, cut 3,000 jobs, and exited 16 markets in six states.
In a ProSales interview with Stock executives during the International Builders Show, Stock president Joe Appelmann said Stock now has 207 facilities and just less then 8,700 employees in 52 markets. That's a marked drop from its 363 facilities and 13,120 workers at the start of 2008.
Stock ranks second on the ProSales 100 list of the nation's largest LBM operations, with sales in 2007 totaling $4.7 billion, 94% of them to professional builders.
Wednesday's story about Stock on ProSales' Web site prompted some Stock employees to note that they remain upbeat about the company's prospects. "It's been a tough couple of years," wrote Arthur Vinson, a training instructor for Stock in Georgia. "Our associates are working hard under trying conditions to uphold Stock's commitment to our customers and ourselves. 'Shock and Awe' reports without real substance are no help. Sure, you cited your sources, sure, it was news, but the tone was incendiary and uncalled for under current circumstances."
Added another assistant manager at a Stock yard: "We have cut some expenses and, yes, we have closed 86 stores. I think the stores that remain will do well once the downturn is over. I still believe that we will stay in the U.S. market and come out of this in a postive way and be even stronger in the future."