White Cap CEO Leads Move to Privatize Firm

Just 21 months after going public, White Cap Industries Inc. said Thursday its founder and other investors plan to buy the company for about $240 million and take it private.

Founder and Chief Executive Greg Grosch, other managers and an investment group affiliate of Los Angeles-based Leonard Green & Partners L.P. will pay $16.50 a share for the Costa Mesa-based company, a 43% premium over Thursday’s closing price.

The transaction, unanimously endorsed by a nonmanagement committee of directors, should be completed in the fourth quarter, the company said.

Grosch will remain chief executive of the company, which operates a chain of warehouse stores that sell construction supplies and tools to contractors.

The executives are bidding to acquire the company partly because the stock has been trading “below what we thought was fair value for the shareholders,” said Chris Lane, chief financial officer.

White Cap, which was founded in 1976, made an impressive showing in its initial public stock offering in October 1997, a reflection of the promising prospects in the construction industry.

The company sold 4 million shares of stock priced at $18 a share. The shares moved up to $24.13 in the first day of trading on the Nasdaq market.

But the shares have lost about 40% of their value over the last year. The stock closed Thursday at $11.50, up 44 cents.

Seeking to boost the company’s value, White Cap retained investment firm Donaldson, Lufkin & Jenrette Securities Corp. to explore various options, Lane said.

The alignment with Leonard Green Partners, which manages more than $1.7 billion in private equity capital, also will help the company as it continues to expand, Lane said.

In December, White Cap bought El Paso-based Sun City Construction Supply, helping it move into Arizona, New Mexico and Texas.

Earlier last year, the company’s expansion drive seemed to stall when the hardware retailer halted plans to buy Valley Construction Supply Inc. in Washington and then called off its purchase of Santa Ana-based Junior’s Tools, a 12-store power tool chain.

For the fiscal year ended March 1999, White Cap earned $10.2 million on sales of $292.3 million.

According to federal documents filed for the period ended Aug. 28, 1998, Grosch owned 2.7 million shares, or 25.4%, of the company.

Grosch and other managers and investors, who collectively own about 45% of the company’s outstanding stock, have agreed to vote for the buyout. The deal must still be approved by shareholders.