Wolseley Slumps on Plans to Sell Shares, Exit Stock

Wolseley Plc, the world’s biggest supplier of heating and plumbing gear, dropped 15 percent after saying it plans to raise 1.05 billion pounds ($1.48 billion) in a share sale and sell its U.S.-based Stock Building Supply unit.

Wolseley fell to 140.4 pence. The builders’ merchant will raise 270 million pounds by placing new shares and 781 million pounds via a rights offering with existing shareholders, the Reading, England-based company said today in a statement.

Investors who had hoped to benefit from an eventual recovery in U.S. housing may be “frustrated” by plans to dispose of Stock, which gets 72 percent of its sales from that market, Exane BNP Paribas analyst Nicolas Godet said in a note.

The steps announced today are aimed at helping Wolseley avoid breaching the terms of its loans. A collapse in bank lending and house prices dragged down U.S. housing starts to their lowest since World War II, pushing the Stock lumber and building materials unit to a loss and Wolseley towards breaking debt terms. A process is underway to find a joint-venture partner for Raleigh, North Carolina-based Stock, close it or sell it by August.

“The move is clearly one of necessity,” Davy Stockbrokers analyst Barry Dixon said. The discounted price of the share sales, 120 pence a share for new buyers and 40 pence for existing investors, “may not prove attractive enough,” he said.

Losses Mount

Wolseley had a first-half net loss of 777 million pounds compared with a 65 million-pound profit a year earlier, the company said today. It won’t pay an interim dividend. Chief Executive Officer Chip Hornsby said he expects Wolseley, which has cut 17,000 jobs and closed 713 branches since August 2007, to make further cutbacks during an “extremely difficult” 2009.

“The market moved so quickly. Everything stopped,” Hornsby said in a conference call with journalists today. “We began to see jobs stopping in midstream because of lack of financing.”

The company has already received expressions of interest in buying Stock, the chief executive said. Hornsby declined to comment on the identity of any potential buyers and refused to say whether Irish-building materials supplier CRH Plc, which announced a 1.24 billion-euro ($1.57 billion) rights offering this week, was part of any talks.

“We continue to have approaches and we’re in discussions with a number of groups,” Hornsby said. “It’s proceeding well. We are in the due diligence process and we anticipate we will make a decision by no later than the end of April.”

Second Sale Attempt

Parties interested in buying Stock during a failed attempt to sell the unit last year included private equity-owned U.S. building-material and equipment distributors HD Supply and Pro- Build Holdings Inc., as well as Builders FirstSource Inc., Triangle Business Journal reported on Aug. 1.

With the sale or exit of Stock, Wolseley will increase the proportion of sales coming from the U.S. commercial construction industry, which will take longer to recover, Collins Stewart analyst Imran Akram said in a note today.

Wolseley also said it will also carry out a strategic review of operations in central and eastern Europe as the company doesn’t have the funds to realize its potential in the region, Hornsby said.

After discussions with investors holding about 60 percent of the company’s existing shares over the past four days, Wolseley concluded that any rights offering had to be supplemented by a share placement due to a lack of so-called sub-underwriting capacity, Chief Financial Officer Steve Webster said.

‘Dozens of Meetings’

Rights offerings are often underwritten by banks that typically seek to share the risk through sub-underwriting. BNP Paribas SA, Deutsche Bank AG, Royal Bank of Scotland Group Plc and UBS AG are managing the stock sales. In the rights offering, existing investors will be offered 11 new shares for every five they already hold.

“After having dozens and dozens of meetings literally over the course of the last couple of days, the expression of support that we’ve gotten for the direction we’re heading in was overwhelming,” Hornsby said. “There was no lack of support.”

Wolseley will also secure a new 1 billion-euro, two-year so- called forward start banking facility available from August 2011 on the condition the placing and rights offering are successful, Wolseley said.