Here’s our take based on MDM’s knowledge of the distribution world on the rumors flying around the Web about UK-based Wolseley plc, global building materials/plumbing/HVAC distributor and parent company to Stock Building Supply and Ferguson in the U.S.
According to some reports, Wolseley is at risk of breaching its bank covenants” -here’s an article from the Telegraph. The company is significantly exposed to the U.S. residential markets and up until this year has been an aggressive strategic acquirer. To improve its financial situation, the company has been aggressively cutting costs in its U.S.-based businesses, closing branches and reducing staff. In its last earnings report, Wolseley said cost reductions in North America and Europe will continue to the end of its fiscal year.
To that end, a report in the Financial Times today says that Wolseley is putting its U.S.-based Stock Building Supply business under strategic review. The article quotes “a source familiar with the process.” According to the source, the UK-based Wolseley has retained advisors and may consider selling the business. Whether there would be any takers on the strategic or financial buyer side is a big question. Some still say the residential market may not have hit bottom yet. In May, Wolseley reported Stock had a net loss of $158 million in the first nine months of its fiscal year. Sales were down 25%, which is in line with competitors’ results this year. Wolseley is not quoted in the article and MDM could not independently confirm the report. Here is the Financial Times report.
Still another report in the Telegraph mentioned rumors that The Home Depot was considering an “opportunistic takeover” of Wolseley. This report, of the three, is most unlikely to happen as HD just sold off its wholesale unit HD Supply and HD shareholders, who played a part in getting HD Supply spun off, would frown upon another venture into the wholesale space. Rumors that HD might be interested in Wolseley have sprung up before. Here’s the Telegraph article.
In its latest earnings report, Wolseley said that challenging conditions in many markets are expected to continue, although the U.S. commercial and industrial market, which accounts for the majority of Ferguson’s business, is likely to remain stable into the next financial year. Globally, sales were up 2% in the first nine months of the year.