Wolseley to raise £1bn by placing and rights issue
Company wants partner for US Stock business
Saturday 07 March 2009
Wolseley, the building supplies company, unveiled its much-anticipated restructuring plan yesterday, including a £1bn capital raising effort.
The group has struggled to reduce its £2.5bn debt as housing markets on both side of the Atlantic have nosedived.
To strengthen its capital base, the company is placing £270m of new shares with existing investors at 120p each, or a 27 per cent discount on Thursday's closing price. After a recapitalistion, a further £781m will be raised through a heavily discounted 11-for-five rights issue and the company has also renegotiated a €1bn (£890m) two-year debt facility.
Chip Hornsby, the chief executive, said: "Our markets have been hit hard in recent months and in response we have continued to take prompt and decisive action to reduce both costs and debt. Following the completion of the comprehensive financial restructuring, the balance sheet will be substantially strengthened."
Wolseley's strategy also includes plans to find a joint venture partner for its Stock business in the US, which accounts for 10 per cent of group revenues, or to sell out by August if a deal cannot be found. The Central and Eastern European businesses are also under review, so the group can concentrate on its core US plumbing and heating business and Western European operations.
Despite the drastic measures, investors remain wary. The group's stock, which has lost more than 70 per cent in the last 12 months, dropped to a 19-year low, closing down 15 per cent at 140.4p. The shares had already dropped by 8.7 per cent on Thursday, after Wolseley was forced by persistent rumours to acknowledge a rights issue was imminent.
A straightforward rights issue would instill greater confidence, according to City experts. "The complex structure reflects the fact that there have been too many rights issues in the market, and also hints that Wolseley was struggling to find sub-underwriters from its normal banks so had to go to its investors," one analyst said.
Wolseley has already cut 17,000 jobs and closed 713 branches since August 2007 and existing cost-saving plans are expected to deliver £572m per year. Financial results, published yesterday, emphasise the scale of the difficulties facing the business. Wolseley's revenues rose 3.2 per cent to £8.3bn in the six months to January, but trading profits dropped by a whopping 43 per cent to £182m, leaving an operating loss before tax of £880m after exceptional items including a £262m impairment charge. The group did not pay a dividend last year, and will not pay out at the half-year either.
The company's board issued bullish statements yesterday about the efficacy of the planned restructuring in meeting the challenges of the current environment. But further actions may still be necessary, if markets deteriorate even further than anticipated, the company said.
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