Keith Allman, Masco’s President and Chief Executive Officer stated, “Last fall, we announced our plan to spin off TopBuild as part of our strategic initiatives to enhance shareholder value. Under the leadership of Jerry Volas as its Chief Executive Officer, I am confident that TopBuild is well positioned to operate as an independent public company. Following the spin-off, both TopBuild and Masco will have greater flexibility to focus on and pursue their respective growth strategies. For Masco, this is our ongoing commitment to create shareholder value by profitably growing in branded building products.”
“We are excited about our new name and identity, which reflect our commitment to deliver the highest quality installation services and products and demonstrate our team’s commitment to enhancing our strong relationships with our customers and suppliers, which include many of the nation’s leading manufacturers of building products,” said Jerry Volas, incoming CEO of TopBuild. “The TopBuild name communicates our position in the industry, our best-in-class people, service and performance, and our focus on our three lines of business: residential construction, commercial construction and repair/remodel. We believe TopBuild’s focus and growth strategies will enable us to create shareholder value.”
In addition, upon completion of the spin-off, the MCS business will operate as TruTeam, reflecting its unique advantage of teaming its trusted local relationships and field professionals with national resources and experience. Service Partners will continue to serve customers under its current name.
TruTeam? At least they didn’t name the company that.
TopBuild had $1.5 billion 2014 revenue.
TopBuild will be comprised of the Masco Contractor Services (MCS) business, a leading installer of insulation in the U.S., and Service Partners, a leading distributor of residential insulation products and related accessories in the U.S. These combined businesses reported revenue of $1.5 billion in 2014 and achieved a compounded annual revenue growth rate of nearly 11 percent since 2010. TopBuild will have over 190 installation branch locations and over 70 distribution centers across the U.S. and will be headquartered in Central Florida.
Odd, they don’t mention anything about profitability. Let’s see what we can find in the Form 10.
We expect to incur $200 million of indebtedness under a bank term loan facility on the Separation date, which we intend to use to fund a cash distribution to Masco immediately prior to the Separation. We also expect to enter into a $125 million revolving credit facility for working capital and other general corporate purposes, with availability under this facility commencing on the Separation date.
Can the company afford to service the debt given current performance? Pro forma earnings per share for the first quarter were a loss of $.07. True, the company reports a pro forma profit of $.37 a share in 2014, but margins are razor thin and that follows years of losses. This is a cyclical business and, depending on when we experience the downside of the cycle, the debt could seriously imperil the company.
Getting rid of TopBuild seems to be a good deal for Masco. Whether it works out for TopBuild shareholders is very much in doubt.
Disclosure: The author holds shares in Masco