05.05.2010

Finning Sells Hewden

Finning has sold Hewden, its UK rental buisness to private equity firm Sun European Partners for £110 million. In the UK Hewden runs the second largest crane rental fleet, is the third largest in powered access and the largest in telehandlers.

The sale was signed and completed today, the price paid for the entire share capital comprises £90.2 million in cash, an interest bearing five year loan note of £20 million repayable in five equal instalments with interest at five percent payable at the end of the period and a five percent equity warrant payable in the event of a sale or IPO during that period.

Finning says that it has agreed a strategic alliance with Hewden’s new owner although it does not include any firm commitment to buy CAT equipment. It also says that Caterpillar fully supports the sale. The company will use the proceeds to reduce its overall debt.

Hewden which rents a wide variety of equipment including cranes, access and telehandlers currently operates from 63 locations in the U.K. with 1,300 employees. The existing Hewden commercial centre in Manchester is proposed as its new head office. Finning has agreed to provide transitional services to Hewden until January 2011.

Finning UK will continue to operate 20 branches in the U.K. with 1,470 employees as the Caterpillar distributor from its head office in Cannock, Staffordshire. Kevin Parkes who has headed up Hewden for the past year or so will continue to manage the business under its new owners.

Finning chief executive Mike Waites said: "After a comprehensive review, we have determined that for strategic and financial reasons, it is in our shareholders' best interest to divest Hewden. While we believe that Hewden's broad product offering combined with our recent restructuring and national accounts focus will serve it well in the future, owning a large, short-term rental business operating separately from our UK dealership does not align with our strategic objectives. Finning remains fully committed to the UK Caterpillar dealership and its employees who are strongly positioned to serve the construction, mining and power systems markets."

"This is a continuation of our journey towards a new Finning and the final step in rationalising our UK operations. Combined sale proceeds from this transaction, Hewden Tools, and the Materials Handling divisions total almost $600 million. We have a great business model going forward and are completely focused on driving the operating performance and value potential of Finning."

The impact of the transaction will result in a second quarter accounting loss to Finning of around C$247 million. The loss includes the realisation of $101 million of foreign exchange losses relating to the investment in Hewden which was previously recorded in Accumulated Other Comprehensive Income, and a $68 million charge relating to the recognition of the unfunded pension liability which the buyer has assumed. After taking this into account, the balance of $78 million is the loss on Finning's net carrying value of Hewden, net of tax.

Andy Fraser, managing director of Finning UK added: "Our market approach is to provide total solutions with extraordinary service and Caterpillar world class products. We are confident we can demonstrate the value of Finning to Hewden's new owners and maintain a productive commercial relationship with Hewden."

Vertikal Comment

This move is a surprise but not a surprise, we reported on this possibility as early as February of this year, but it was always possible that Finning would restructure the business and continue until such a time as it might obtain a higher price.

Finning has struggled with Hewden almost since it acquired the business in 2001 as part of Caterpillar’s big CAT Rental store expansion at the start of the new decade. The company now says that Hewden was “not a good fit”, has been a drag on its earnings having not met its expectations and has a greater value to others.

Combining a UK day to day short term rental operation, especially one that includes operated equipment such as cranes, with an international, publicly owned CAT distributor was never going to be easy.

Over the years Finning always seemed to be restructuring Hewden or changing its management, hardly leaving time between such initiatives for anything to work. Amazingly the staff at the 42 year old rental company battled on and while no longer a market leader in the crane or access markets, the company maintains a strong name in the markets it serves and is still the largest telehandler rental company in the UK.

Hopefully its new owners have not overleveraged the business with debt and will provide some stability, allowing the current management to continue to rebuild and strengthen the business.

Who knows perhaps in a couple of years or so Hewden Stuart will once again be a stand alone – possibly publicly quoted company? This should hopefully be a good move for both Finning and Hewden.