Ferguson’s €1bn sale of Nordic unit could fund special dividend
PLUMBING and heating supplier Ferguson has raised the prospect of a special payout to investors after selling its Nordics division to a private equity firm.
FTSE 100-listed Ferguson – known as Wolseley until it rebranded in July – sold the underperforming building material distribution business to Stark Capital, part of Lone Star Funds. The sale, for €1.025bn (£910m), was on a debt-free and cash-free basis, and costs related to the deal are expected to be about €50m. Net assets of the business being sold are around the €500m mark, and Ferguson is retaining about €150m of property. It is expected this will be sold off at a later date.
John Martin, the chief executive of Ferguson, which operates the Plumb Center brand in the UK, explained that the sale would “enable us to continue to focus on our strategy of accelerating profitable growth in our plumbing and heating businesses”.
He added that once the deal, which will require the approval of regulators, is completed, management would be updating their investors on “asset allocation plans including the utilisation of excess cash”.
Analysts at Davy said the sale price represents 6pc of the current share price on a per share basis. They added that they would not be surprised if the excess cash was returned to shareholders, adding that as a result of the disposal Ferguson is “effectively net cash on a pro forma basis”.
Bank of America Merrill Lynch has echoed the sentiment, pointing to its note last week suggesting that Ferguson “could afford to return 15pc to 20pc of its market cap to shareholders over the next 12 to 18 months through dividends and buy-backs”. The price achieved by Ferguson, which renamed to its US brand because more than 80pc of its revenues are derived from North America, was also more than some analysts had been expecting.
However, the deal and the potential for an extra payout drew a muted reaction from investors, with the shares reversing early gains to end the day down 0.4pc at £52.95.