Rugby Group buys Bunzl's US building supplier for pounds 61m

BUNZL yesterday continued to dismantle the acquisitions policy of the late 1980s by selling its US building supplies business to Rugby Group for dollars 93m ( pounds 61m) in cash.

Anthony Habgood, chief executive of Bunzl, said he was pleased with the price and was under no pressure to sell, even though the company was receiving less than it paid for the series of purchases. The price achieved represents 24 times last year's fully taxed earnings.

New accounting rules (UITF3) will result in a net goodwill charge of pounds 35m in this year's profit and loss account. But Mr Habgood said the goodwill had been written off through the balance sheet in the 1980s and that shareholders' funds would increase.

The proceeds of the disposal will be used to reduce borrowing. Gearing is expected to fall to about 35 per cent from 43 per cent at the end of December 1993.

The performance of the building supplies business improved after the injection of new management in 1992.

It made an operating profit of pounds 4.2m last year on sales of pounds 239m.

However, Mr Habgood said the business still failed to generate a return that would justify further investment and did not fit with the strategy of investing in paper and plastic-related businesses. Bunzl has acquired five paper and plastics businesses in the past year.

Rugby's existing US building supply business will be significantly expanded by the acquisition. The combined network will be one of the largest wholesale distributors of joinery and other building products in the US.

Rugby is financing the purchase through a vendor placing of 49 million new shares at 125p.

Bunzl shares closed unchanged at 164p while Rugby's climbed 3p to close at 134p.