UK-based building materials distributor Wolseley plc has entered into a joint venture of Stock Building Supply with affiliates of U.S.-based The Gores Group LLC. Wolseley will retain a 49% equity interest. One hundred percent of the shares of Stock will be sold to a new joint venture company called NewCo.
Wolseley will hold two board seats in the joint venture. The distributor will continue to be called Stock Building Supply and will be led by the existing Stock management team, including Joe Appelmann as president.
A pre-packaged Chapter 11 reorganization plan will facilitate the sale, according to the distributor. This allows for all trade creditors to be paid, and according to Wolseley, will create a "substantially lower cost base." Obligations to customers, employees and suppliers during the 45- to 60-day "pre-pack" period will be met through a $100 million credit facility from Wolseley. No other Wolseley business will be affected by the process.
These conditions are subject to approval of the bankruptcy court.
After restructuring, Gores will invest $200 million in Stock.
Chip Hornsby, Group Chief Executive of Wolseley, said:
I am pleased we have partnered with The Gores Group to create a solution that will allow Wolseley to exit Stock. This is in line with our stated strategy, and we believe is in the best interests of the business and the Group’s shareholders, customers and employees. In particular, the transaction allows Wolseley shareholders to participate in the long-term value potential of the business while strengthening the Group’s financial position. A Chapter 11 pre-packaged reorganization is a frequently used procedure to sell and recapitalize businesses in the U.S. and should enable an orderly transaction while honoring our commitments to our trading partners.
Alec Gores, founder and chairman of The Gores Group, says the firm believes that Stock is "well-positioned to benefit from a recovery" in the building products sector in the U.S.
"Wolseley has already taken aggressive actions to mitigate the effects of the U.S. housing downturn on the Stock business by continuing to diversify its exposure to new residential construction and streamline its operations," he said. "We believe the steps already taken by Wolseley in tandem with Gores’ focus and operational expertise, will position Stock well to continue to provide high quality products and service to its customers and to return to profitability when the economy improves.”
Wolseley announced its plans to exit Stock in early March so that it could focus on its core businesses of Ferguson, UK and Ireland, France and the Nordic businesses and conduct a strategic review of its Central and Eastern European division.
Stock is a provider of building materials and construction services to professional home builders and contractors in the U.S. The company was formed from Wolseley’s acquisition of Carolina Builders in 1986 and has grown significantly through a series of acquisitions. The business is headquartered in Raleigh, NC, and operates from 200 locations in 27 states. For the year ended July 31, 2008, Stock had sales of $2.5 billion and a loss of $119 million.
Founded in 1987, The Gores Group, LLC is a private equity firm focused on acquiring controlling interests in mature and growing businesses. The firm’s current private equity fund has committed equity capital of $1.7 billion. Headquartered in Los Angeles, California, The Gores Group, LLC maintains offices in Boulder, CO, and London.
