Stock Supply Reorganizing with New Investor
Wolseley plc has entered into a joint venture with The Gores Group LLC, a Los Angeles-based privaty equity firm, to acquire a majority stake in Stock Building Supply. The transaction will take place through a pre-packaged Chapter 11 reorganization, offiicials report.
Stock, one of North America's largest suppliers of building materials to builders and contractors, was formed from Wolseley’s acquisition of Carolina Builders in 1986 and has subsequently grown through a series of acquisitions. The business, which includes window manufacturing and door pre-hanging operations, is headquartered in Raleigh, N.C., and operates from approximately 200 locations in 27 states with 7,250 associates. For the year ending July 31, 2008, the Stock business generated revenue of $2.56 billion, and reported a loss of about $119 million.
Wolesley announced in March its intent to exit the building products business. The British company said Stock no longer fit with its strategy to focus on its core businesses of North American plumbing and heating, and its UK and Ireland, France and the Nordic businesses.
With the transaction, Wolseley has sold all its Stock shares to a joint venture company, NewCo, in exchange for a 49 percent stake in NewCo. The Gores Group will own a majority interest in NewCo and has also committed to making investments of up to $200 million in the business conditional upon approval of a reorganization under a Chapter 11 pre-packaged arrangement.
Gores will control NewCo, with the business continuing to use the Stock Building Supply brand, and be led by the existing Stock management team, including Joe Appelmann as president. “We are very excited about today’s announcement and look forward to working with Gores to develop the business,” he states. “Gores’ strong operational expertise and focus will help position the company during this unprecedented downturn and to outperform the market.”
As part of the pre-packaged restructuring, all leases for locations previously closed by Stock and certain additional locations which are marked for closure will be rejected as provided within the bankruptcy code. The pre-pack, which is subject to approval of the bankruptcy court, will provide for payment in full of all trade creditors and the full allowed amount of other creditors, officials explain. Stock will continue to conduct business during the Chapter 11 process, and with substantially lower costs, the distributor is expected to emerge financially stronger and better able to weather the remainder of the current housing downturn.
The transaction does not include Stock's construction lending business, which will be retained by Wolseley. The company intends to continue to operate the business but to effect a phased reduction in the portfolio over the next two to three years, with an eye to positioning the business for a possible future sale.
“I am pleased we have partnered with The Gores Group to create a solution that will allow Wolseley to exit Stock," says Chip Hornsby, Wolesley group chief executive. "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 reorganisation is a frequently used procedure to sell and recapitalise businesses in the U.S. and should enable an orderly transaction while honouring our commitments to our trading partners.”
“We are enthusiastic to partner with Wolseley and the Stock management team on this transaction," says Alec Gores, founder and chairman of The Gores Group. "We believe that given Stock’s leadership in the marketplace, it is well positioned to benefit from a recovery in the sector. 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. 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.”
"Throughout this process, Stock will continue our normal business operations without disruption," writes Appelman, in a letter to customers posted on the company site. "You will continue to receive the high quality of products and service that you have come to expect from Stock. In fact, unlike many companies in our industry still facing a variety of financial challenges, including too much debt, we will emerge from the process with a much stronger balance sheet. These steps will ensure that we are prepared for the continued privilege of serving building and construction contractors. It is who we are; it’s in our DNA."
Appelman offers similar assurances to vendors in another letter posted on the site. "Stock will continue our normal business operations without disruption and will satisfy all of our obligations to our vendors," he writes. "As part of the sale and filing, Stock will pay in full all vendor obligations. Products and services that we purchase from you post-filing will continue to be paid in the ordinary course of business. We have requested court approval to pay for all pre-filing purchases in the ordinary course and we expect the court to grant that request."