Stock Building Supply enters joint venture
Wolseley, the U.K.-based parent company of Stock Building Supply, has announced plans to spin off its U.S. building materials unit into a joint venture. Its new business partner, a Los Angeles private equity firm known as the Gores Group, has purchased 100% of Stock’s shares and will own a 51% interest in the joint venture, which is being called “NewCo.” Gores will control NewCo, and Wolseley will have two board seats out of a total of seven.
The business will continue to use the Stock Building Supply brand. Stock’s management team, including president Joe Appelmann, will also stay on, according to the announcement.
With $3.5 billion in annual revenues, Stock is the industry’s second largest pro dealer. It currently operates 200 locations in 27 states.
Under the terms of the agreement, Gores will make additional investments in Stock -- $75 million in preferred equity, then a revolving line of credit up to $125 million -- once a “prepackaged” Chapter 11 reorganization plan is executed for the Raleigh, N.C.-based pro dealer. This bankruptcy filing will give Stock more flexibility to shed operations associated with closed locations and underperforming markets, according to a statement issued by the Gores Group. But a “prepack” plan will also stipulate that all trade creditors, suppliers, customers and employees be paid in full, the statement said. As a result, creditors are not required to vote on the plan. Bankruptcy court approval is required, however.
Stock has already filed its voluntary Chapter 11 petitions with the U.S. Bankruptcy Count in Wilmington, Del. The process is expected to last 45 to 60 days. Wolseley has agreed to provide up to $100 million debtor-in-possession financing during this period.
For Wolseley, the joint venture will stop a steady hemorrhaging of cash and, just as important, get Stock off its balance sheet. During Wolseley’s last fiscal year, which ended on July 31, 2008, Stock racked up a $246 million loss. On March 6, after announcing another $129 million in losses, Wolseley revealed that it would either sell, spin off, or shut down all its LBM outlets in the United States. “We are determined to exit that business,” said CEO Chip Hornsby.
Headquartered in Los Angeles, the Gores Group (www.gores.com) also operates offices in Boulder, Colo., and London. The company’s previous investments have been primarily in telecommunications and technology-related companies.
