announced today that it has signed a definitive agreement with Ferguson Enterprises, Inc. to sell its Full Service Supply (FSS) business for about $41 million. Ferguson is the US-based integrated supply and distribution subsidiary of Wolseley PLC, an approximately $19 billion UK-based firm. The company plans to use the proceeds of the sale for additional investment in its core consumable materials business and for further debt reduction. The disposition of this unit is in line with the continued execution of Kennametal's strategy to concentrate on its core businesses.
Full Service Supply provides integrated supply chain management and logistics to large and medium sized metalworking plants. This unit reported total annual sales of $138.4 million and operating income of $0.8 million in fiscal year 2004. Beginning in fiscal year 2006, the divestiture of FSS is expected to be accretive to Kennametal's margins and ROIC. As a part of the transaction, Kennametal will take an estimated $9 million pre-tax charge in the quarter ending March 31, 2005, resulting in an earnings-per-share impact of about 18 cents.
Markos Tambakeras, Kennametal chairman, president and CEO, stated: "We are very pleased with the agreement. The divestiture allows us to focus on our core businesses while FSS is joining a company that can fully leverage its capabilities. Our goal was to find a strategic partner for FSS that could accelerate growth, add incremental value to customers and be a good home for FSS employees: Ferguson is a great match. Our agreement with Ferguson includes a four-year supply contract that allows for continuity and is a win-win for both Kennametal and Ferguson."
The transaction is expected to be finalized in May 2005.