Wolseley buys Erb Lumber for pounds 51m: Placing raises pounds 106.45m for acquisitions

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The Independent Online
WOLSELEY, the building materials distributor, has become the leading timber distributor in the US with the acquisition of Michigan-based Erb Lumber for up to dollars 77.75m ( pounds 51.45m).

The deal, which is being carried out by the group's Carolina Builders Corporation subsidiary, will add 47 branches in Michigan, Indiana and Ohio to Carolina Builders' 19 and will more than double the subsidiary's sales.

The purchase was accompanied by the placing of 18.8 million shares at 632p, raising pounds 106.45m. Wolseley's shares were unchanged at 654p. Up to pounds 51.45m of the money will be used to fund the Erb deal and the remainder for future acquisitions. Richard Ireland, finance director, would not comment on when these deals would be agreed, but said: 'We do not want to have pounds 50m in the bank for too long as it will not earn enough money.

'There are good opportunities like this at sensible prices and if they fit our strategic thrust, we will consider them.' The group is the world's largest distributor of plumbing and heating products, and a leading supplier of building materials to the professional trade.

Erb made pre-tax profits of dollars 12.1m in 1992 on sales of dollars 271.3m, mainly of lumber and associated products. Its net assets at that date were dollars 62.3m. Mr Ireland said it had been run by Fred Erb but, at 70, he was now keen to retire.

Wolseley has agreed to pay the equivalent of Erb's gross assets, less its liabilities, at 31 August subject to a maximum of dollars 77.75m. It is not acquiring debts or other liabilities. Of the consideration, 90 per cent will be paid on completion, 5 per cent when the closing balance sheet is agreed and 5 per cent next June.

Analysts were enthusiastic about the deal, saying that the price, equivalent to abut 10.7 times 1992 earnings, looked cheap given the recovery prospects in the US. But some criticised the share placing as opportunistic. It brings the amount raised by Wolseley to pounds 253.6m in the last 18 months. In February 1992 it raised pounds 85m to acquire Brosette, France's leading plumbing distributor, and in April this year a further pounds 62.2m was used to fund the purchase of Enertech Industries, a Swedish boiler manufacturer.

The group's borrowings at the half-year were about 30 per cent of net assets and that is unlikely to have changed much at the 31 July year-end. But Mr Ireland said the group did not like to use borrowings to finance large acquisitions.

He admitted, however, that the placing was also to take advantage of the high price of the group's shares, which have outperformed the building materials sector by about 50 per cent over the last year. Howard Seymour, building analyst with Barclays de Zoete Wedd, expects the purchase to increase earnings by 0.5p to 31.9p in the current year, putting the shares on a multiple of 20.5.

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