WinWholesale to Buy Noland Company

In a $250-million cash tender offer, WinWholesale, Dayton, OH, an equity partner in more than 400 local distributors across multiple industrial lines, has signed a merger agreement with Noland Company, a $550-million publicy-held, third-generation family-run distributor of plumbing, electrical, HVAC, mechanical equipment and supplies in the Southeast. WinWholesale expects to take Noland private and delist it from the NASDAQ stock exchange.

Rare is the match made in heaven, but this deal offers the Noland family a golden exit strategy, investors a huge premium and reward for extreme patience with the stock for many years, and WinWholesale a very compatible growth platform, not to mention an immediate 40% revenue bump. Potentially, customers and employees gain a continued strong local service model with a stronger infrastructure behind it.

Strategically the deal gives WinWholesale a regional piece in the Southeast to fill in its current coverage in 41 states, primarily in the Northeast, Midwest and West. Noland has 101 facilities in 13 states, primarily in the Southeast. From a product standpoint, both companies are diverse, with plumbing supplies making up an estimated two-thirds of WinWholesale's revenues and roughly 56 percent of Noland's revenues in 2004. 

The fit looks good on a few different operational levels as well. The two companies both operate on IBM hardware platforms, each with internally developed software. "From our perspective, it makes it a potentially easier integration between the existing systems," Bruce Anderson, a WinWholesale spokesman, told MDM. And culturally, both companies share a long-term paternalistic management structure. WinWholesale's founder was president from 1956 until 1998.

 
Founded in 1915, Noland is a third-generation, family-run, publicly-traded independent wholesale distributor of mechanical equipment and supplies, primarily in plumbing and HVACR products. Noland has 1,400 employees. Sales in 2004 totaled $548.1 million, generating $18.4 million in net income. The Noland family owns 62% of the company's shares.

A Different Model
WinWholesale is a little different animal than most traditional distributors. Its parent, Primus Inc., is in a private-equity partnership with more than 400 corporations, where it controls a majority interest in each of the companies; the individual company presidents and top executives hold the minority interest. Primus provides back-office functions, including data processing, payroll, insurance, group buying and other distribution/overhead expense items. Its fee to partner companies is 4.5% of gross margins.

WinWholesale, incorporated as Primus Inc., has annual revenues of $1.4 billion and is dedicated to local, entrepreneurial ownership. It operates across eight different product segments, each with its branded name: The collection of independent corporations sell plumbing supplies (Winnelson), industrial PVF (Windustrial), heating and cooling materials (Winair), electrical equipment (Winlectric), waterworks supplies (Winwater Works), pumps (Winpump), fasteners (Winfastener), and electronics (Wintronic). Each of the 400-plus operating units averages about $3 million in annual revenues, with a range from under $2 million to $15 million.

Noland will continue to operate in its current branch structure under its current name until WinWholesale develops a plan to integrate and develop each local unit, Anderson said. It's also too early to tell how current Noland branches will look as far as product mix; most WinWholesale businesses operate into specific verticals.

What a Deal!
Under the terms of the agreement, unanimously approved by both companies' boards of directors and by a special committee of the board of directors of Noland Company, WinWholesale will pay $74.00 in cash for each Noland Company share. Noland had 3,384,386 shares

outstanding as of Mar. 14, making it a $250.4 million cash deal, not including about $30 million in debt Noland has on the books. That represents a premium of about $86 million above its current equity value. The $74 per share offer represents a 52 percent, or $25.42 premium for Noland shareholders based on the market closing price of $48.58 on April 11 and a 42 percent, or $21.85, premium, over Noland's book value as of Dec. 31, 2004.

Noland shares on the Nasdaq closed Apr. 11, the day prior to the merger announcement at $48.58. The stock had been trading in the $40-50 range the past year. The stock shot up more than 50% on Apr. 12 to close at $73.70.

The acquisition, subject to certain conditions, is anticipated to close within 45 days. Shortly after the transaction closes, WinWholesale will take Noland Company private and it will be de-listed from the NASDAQ. WinWholesale expects combined 2005 revenues will exceed $2 billion.

It is expected that the tender offer will commence no later than Apr. 18, 2005, and is expected to close by May 16, 2005, unless extended. The tender offer will be subject to customary closing conditions, including receipt of regulatory approvals and the tender of more than two-thirds of the outstanding Noland shares. Noland's board members control approximately 63 percent of the outstanding shares on a fully diluted basis. Following the close of the tender, any shares not tendered will be acquired at $74 per share in cash in a subsequent merger.

Each of Noland's board of directors and the special committee of Noland's board of directors has unanimously recommended to Noland shareholders that they accept the WinWholesale offer and tender their shares.

William Blair & Co. acted as financial advisor to WinWholesale and will serve as the dealer manager on the tender offer. The Blackstone Group L.P. served as financial advisor to Noland and rendered an opinion as to the fairness to the Noland shareholders from a financial point of view of the transaction price.

Lloyd U. Noland, III, chairman and president of Noland Company, and grandson of the company's founder, L.U. (Casey) Noland, said he felt the timing was right to sell the company, which is publicly traded but controlled by the Noland family through ownership of approximately 62 percent of the outstanding shares.

"In order to obtain the critical mass required to be a long-term player in this industry," said Noland, "we would have to recapitalize the company to fund accelerated growth — growth that would be a multi-year process. At my age, I wasn't willing to tackle it. In addition, the time and expense associated with complying with Sarbanes-Oxley was pushing us to consider either going private or selling. Since our most attractive alternative was to find a merger partner, I am delighted that WinWholesale has made us an attractive offer.

"Together, Noland Company and WinWholesale represent 140 years of providing outstanding wholesaling services throughout the United States. We are pleased to entrust Noland Company's future in the hands of WinWholesale, a company that has demonstrated its ability to grow revenues and profits and to provide opportunities to its employees as well as value to its customers."

Rick Schwartz, president and CEO of WinWholesale, stated: "We have been looking for a partner whose geographic reach complements WinWholesale's existing local companies. We believe that WinWholesale's and Noland's customers will benefit from our collective 5,100 employees, 530 locations in 43 states and more than $300 million of inventory ready to serve their needs. We are confident that combining the WinWholesale and Noland organizations will spur further growth and profit opportunities throughout the distribution chain."