Never ask of money spent, Where the spender thinks it went.
Nobody was ever meant, To remember or invent
What he did with every cent.
So the stock market is looking slightly more favourably upon the somewhat beleaguered Wolseley now that they have finally found someone who’s going to take Stock Building Supply off their hands. Or at least half of it, since 100% of the Stock shares have been transferred to a joint venture company, in which Wolseley will hold 49% and have two seats on the board. They’ve done it this way, the company says, because it means that Wolseley’s shareholders will still be in a position to benefit from any upturn in the market.
And indeed, the Gores Group has told the American press, that they intend to expand the business, probably by acquisition. The idea is that shareholders would prefer to hang in there and make some money back, rather than cut their losses and run.
However, part of the reason that Stock ended up in such a spectacular mess is the way that its expansion was handled and, although we are now talking about a completely American company, I think it’s worth highlighting.
Prosalesonline.com, which is kind of BMJ’s US equivalent, have been doing a lot of work on this story and have pointed out a few things to me. Incidentally, the website is well worth checking out if you want to keep an eye on what’s happening in American merchanting and construction markets.
When Stock was growing to roughly 365 facilities and 17,000 employees, they did so in part by acquiring a lot of other business. As they did, they apparently had a policy of making a partial upfront payment to the business owners and then promising to pay the rest in the form of leases on the lumberyard (or truss facility, or design center, or whatever) property that they owned.
So long as the housing market was growing and all those leased facilities were churning out sales, things were fine. But when the market turned and Stock had to close the lumberyards, they were still stuck with paying the leases on some of those properties, and in many cases couldn’t sublet them.
I’m not a financial journalist so sometimes I’m a bit hazy on what it all means, and that may just be a perculiarly American way of doing things. But what if it isn’t? If that was the policy which helped the expansion in the States, was it also the policy with expansion elsewhere? Are there other areas where the company has been stuck paying for leases on buildings or yards that it no longer needs?
And are there other companies whose recent expansion activity has been similarly funded? I’d be interested to find out. And if I’m wrong, I’d be happy to be put right.