Ferguson to sell Wolseley to a U.S. private equity firm for £308 million in cash

Ferguson plc (LON: FERG) said on Monday that it had struck a deal with a private equity company based in the United States to offload its U.K. business, Wolseley, for £308 million in cash. The British multinational also highlighted that it expects to complete the transaction by the end of January.

Ferguson opened more than 1% up on Monday but lost the entire intraday gain in the next hour. The stock has recovered more than 100% compared to its low in March 2020 when the impact of the Coronavirus pandemic was at its peak. At £89 per share, Ferguson is currently trading at a five-year high in the stock market.

Ferguson intends to announce a special dividend

The news comes almost a month after Ferguson said that its profit jumped 12.2% in the fiscal first quarter, despite the ongoing COVID-19 crisis that has so far infected more than 2.6 million people in the United Kingdom and caused over 75 thousand deaths. In terms of revenue, the Wokingham-based company saw a 3.1% annualised growth in Q1.

According to Ferguson, the board intends to announce a special dividend that will return the majority of the proceeds from its agreement with the U.S. private investment firm, Clayton, Dubilier, & Rice, to the shareholders. Ferguson was given a consensus recommendation of “hold” from 19 brokerages last week.

Wolseley U.K. was put on sale in September 2019. In the financial year that concluded on 31^st July 2020, the plumbing and heating products distributor reported £8 million of trading. Its revenue in during the period came in at £1.9 billion.

CEO Kevin Murphy’s comments on Monday

CEO Kevin Murphy commented on the news on Monday and said:

“The transaction further simplifies the group and allows us to focus entirely on investing in and developing our business across North America, where we have the greatest opportunities for profitable growth.”

Once the deal is completed, Ferguson will still be liable for the U.K. pension obligations that had £19.74 million worth of net pension liability. Wolseley U.K. business, in return, will keep no responsibility to the scheme.

Ferguson performed largely upbeat in the stock market last year with an annual gain of close to 75%. At the time of writing, the British multinational plumbing and heating products distributor has a market capitalisation of £20 billion and a price to earnings ratio of 28.93.