Wolseley Plc revealed today that it is in the process of identifying a joint a venture partner for Stock Building Supply, the second-largest U.S. pro dealer, or else will exit the business by Aug. 1. "A number" of unnamed companies are interested in acquiring all or part of Stock, the U.K.-based company said in a statement issued by Stock.
In a report released this morning, Wolseley said the decline in housing starts, coupled with a continued decline in lumber prices, have expedited the company's decision to pursue a sale or joint venture, or to dispose or exit Stock Building Supply, by Aug. 1. Wolseley also announced that it will try to raise 1 billion pounds ($1.42 billion) in a rights issue.
"We are working very closely with Wolseley to identify potential partners that can help Stock Building Supply grow when the market recovers," Stock Building Supply President Joe Appelmann said in a separate statement. "Our business model has fundamental differences from the remainder of Wolseley's portfolio, and in these economic times it makes sense to explore other options."
Stock provides 10% of Wolseley's worldwide revenue. During the six-month period ended Jan. 31, Stock's revenue fell 25.5% to $1.34 billion, leading the company to post an operating loss of $129 million. That compares with an $81 million in the first half of the previous fiscal year. Stock said a 15.9% drop in like-for-like sales volumes, caused in part by a drop in lumber prices, contributed to the overall sales slump. It also noted that new housing, which accounted for 68% of Stock's business in the first half, is in a slump, with housing starts having fallen 41% from the previous year.
Raleigh, N.C.-based Stock responded in its fiscal first half by closing 83 branches and slashing headcount by 4,330. Stock now has only about half the employees it had 18 months ago. In July 208 it had 285 locations; now it has 202. In addition, three distribution centers have been closed.
"We have worked diligently to position the business so that it will be ready to take best advantage of the upturn--which we know will come," said Appelmann. "We continue to operate in the highly cyclical sector of new residential construction in the U.S., but we remain committed to this market. It's a part of who we are; it's in our DNA."
Stock Building Supply, formerly Carolina Holdings, was formed in 1986 by Wolseley's purchase of Carolina Builders.
In 2006 the company announced sales of $5.3 billion at the height of the housing boom. However, a report issued by Goldman Sachs indicates that, unless banks ease their lending covenants, Wolseley will need to close Stock if it hopes to survive.
Goldman Sachs made its comments while lowering its rating on Wolseley from "neutral" to "sell."
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.
"We are confident that we can conclude a deal in the best interests of Stock Building Supply and Wolseley's shareholders," said Chip Hornsby, Group Chief Executive for Wolseley. "Indeed, our preference is to structure a deal that enables our associates and shareholders to benefit in the long-term potential of the business, such as a joint venture."