BFS appoints committee to explore recapitalization

Builders FirstSource, one of the industry’s largest LBM chains, has entered the next phase of a possible recapitalization plan by hiring outside help to weigh its options. The Dallas-based company announced that it has hired Moelis & Co. as its financial adviser; Alston & Bird as its legal counsel; and Morris, Nichols, Arsht & Tunnell as its special Delaware counsel.

All three firms will assist a “special committee” of independent directors -- whose members have yet to be named -- to evaluate a proposal by BFS’ two largest investors, JLL Partners and Warburg Pincus, to recapitalize the company because of fears over its cash position. The two private equity firms want to extend a $75 million offering to existing stockholders at $2 per share; a $98 million debt exchange, also at $2 a share, plus a swap of remaining notes for new notes, equity or both.

In a prepared statement, Builders FirstSource warned against reading too much into the hiring of outside counsel. “No decisions have been made by the Special Committee with respect to the response, if any, to the JLL/Warburg proposal,” the statement read. “There can be no assurance that the proposal from JLL and Warburg or any other transaction will be approved or completed.”

The JLL/Warburg proposal, filed with the Securities and Exchange Commission on Sept. 1, was followed by a drop in the company’s share price from $7.69 to $4.98 that same day. By Sept. 4, two separate law firms announced they were launching investigations on behalf of shareholders.

Barrack, Rodos & Bacine in Philadephia and Howard G. Smith of Bensalem, Pa., both said they are looking into “possible breaches of fiduciary duty and other violations of state law related to the reorganization proposal.”

They cited the continued decline in the company’s share price.

Builders FirstSource closed yesterday, Sept. 9, at $4.74 a share on Nasdaq.