Ferguson (FERG) intends to demerge its UK arm in order to become an exclusively North American business, the company has announced. The plumbing and heating products distributor is considering moving its listing to the US, and will replace chief executive John Martin with the head of US activities, Kevin Murphy.
Ferguson has been conducting a review of its assets over several years, after developing a significant bias towards North America, securing 80 per cent of its ongoing revenues in its 2018 full year in the US. It also has a presence in Canada, and has now decided to concentrate its efforts on this continent.
Once the demerger is completed, Ferguson’s UK outfit, Wolseley UK, will become an independently listed company and focus its efforts solely on UK residential and commercial customers. Scheme documents for the demerger are likely to be published by the end of this year.
With Ferguson set to leave the UK behind, the company will consult shareholders on whether to move its listing from the London Stock Exchange. Ferguson will weigh up options including whether to remain listed in the UK, move entirely to the US or opt for a dual UK/US listing. The consultation is likely to conclude next year.
The changes follow the news that activist investor Trian Fund Management took a 5.98 per cent stake in the group in June 2019. Upon announcing its stake, Trian said it “believes that Ferguson is an attractive business that trades at a discount to comparable US peers”, and that it “looks forward to working with [management] to explore and implement initiatives that it believes can create long-term shareholder value”. Trian declined to comment on Ferguson’s latest announcement.
But Peel Hunt’s Clyde Lewis doubts that Trian influenced Ferguson’s decision to pursue its demerger, adding that the listing consultation was “probably not” in response to Trian. Given Ferguson’s preference for North America “getting rid of the UK business through a demerger was a sensible route,” he said.
The analyst said that it probably did not make sense for the business to have a UK listing going forward, given its intended direction. It is plausible that a move may encounter opposition from some institutional shareholders whose investment mandates may block them from holding overseas stocks. “You’ve got some vested interests that probably want to see a UK listing maintained,” Mr Lewis observed. "I’ve owned the stock for some time and I continue to like the US business where it is the dominant player in the market," said Aruna Karunathilake, portfolio manager of the UK Select fund at Fidelity International.
