Bloomberg News

Wolseley Hired Outside Lease-Breaker to Cut Rental Expenses

October 14, 2011

(Clarifies effect on provisions in third paragraph, adds share price in 10th.)

Oct. 14 (Bloomberg) -- Wolseley Plc, the world’s largest supplier of heating and plumbing products, will save about 30 million pounds ($47 million) through an outsourcing deal that brought an end to most rental agreements on 163 surplus properties.

Legacy Portfolio said it received 47 million pounds in June 2010 to help Wolseley get out of leases for the buildings, mostly warehouse outlets. Legacy has since terminated 120 leases after settling with the landlords and found tenants at some other properties to replace Wolseley, according to a statement today from the companies.

The payment to Legacy covers all the future rent that Wolseley owes for the surplus properties, so the Zug, Switzerland-based company doesn’t have to make further provisions for them in its accounts. The deal is the U.K.’s largest lease liability transfer to date, Cushman & Wakefield Inc. said. It means Wolseley will pay only 61 percent of the 77 million pounds originally that was due until all the leases expired.

“This transaction has allowed us to focus on our core operational objectives and ensured that the needs of the branch network are fully supported,” said Andrew Pickett, Wolseley’s U.K. real estate director, in the statement.

Slimming Down

The deal is part of Wolseley Chief Executive Officer Ian Meakins’s plan to reduce the company’s size, eliminate debt and cut costs. Pretax profit for the 12 months through July was 391 million pounds, compared with a 328 million-pound loss a year earlier, the company reported earlier this month.

Meakins sold peripheral businesses and cut the branch network of Wolseley’s brands. That left the company with 177 properties in the U.K. that it no longer needed, 14 of which it owned. It chose Legacy after a tender that included eight other companies.

Legacy, owned by its managers and private individuals, makes its money by keeping as much as possible of the lump sum it receives after disposing of the surplus leases through sister company FraserCRE.

“There can be no greater comfort that the risk has been removed completely than a surrender,” Legacy Chairman Alexander Anton said in the statement. “Our success in doing so in 75 percent of the properties is all down to our structure and execution capabilities.”

Legacy declined to comment on the profit it expects to make on the Wolseley deal.

Wolseley advanced 16 pence in London trading to 1,697 pence at 4:07 p.m. The stock has fallen 17 percent this year, giving the company a market value of 4.83 billion pounds.

--Editors: Ross Larsen, Jeff St.Onge.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.


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