April 12, 2018 / 11:33 AM / 10 days ago

Genuine Parts to merge S.P. Richards business with Essendant

(Reuters) - Genuine Parts Co (GPC.N) said on Thursday it would spin off its wholesale distribution business S.P. Richards and merge it with Essendant (ESND.O) in a tax-free transaction for shareholders, as it focuses on its industrial and auto parts businesses.

The combined company will have more products and resources, giving its customers - mainly independent dealers - a one-stop shop as they grapple with intense competition from e-commerce giant Amazon.com Inc (AMZN.O) and big-box stores.

“This combination of our customer centric companies creates a stronger partner to support those dealers and help them to be more competitive with all the other options available to customers in the industry,” Essendant Chief Executive Officer Ric Phillips said on a call with analysts.

Essendant’s shares jumped 18 percent to $10.00, while those of Genuine Parts were up about 1 percent at $90.17 in morning trading.

Illinois-based Essendant is a wholesale distributor of workplace items including janitorial supplies, while Atlanta, Georgia-based S.P. Richards distributes products ranging from office furniture to school supplies.

The combined entity will be called Essendant and headed by Phillips. S.P. Richards CEO Rick Toppin will become chief operating officer of the new company. Essendant had a market capitalization of about $323.5 million as of Wednesday’s close.

Genuine Parts, one of the leading U.S. car parts distributors, said the deal implied a valuation of about $680 million for S.P. Richards.

Genuine Parts will get $347 million in cash and its shareholders 51 percent of the newly-formed combined company. Structured as a Reverse Morris Trust deal, the transaction will be tax-free for the companies’ shareholders.

The company has been evaluating options for the S.P. Richards business, which has been pressured by weak demand for office supplies.

Essendant has also been hit as large customers source products directly from manufacturers. Its net sales declined 6.2 percent to $5.04 billion in 2017, while adjusted profit fell more than 50 percent.

Genuine Parts has been focusing on its auto parts and industrial businesses. Last year, the company completed a deal to buy London-based Alliance Automotive Group and took a stake in Australia’s Inenco Group.

Citigroup Global Markets Inc was the financial adviser for Essendant, while J.P. Morgan advised Genuine Parts.

    Reporting by Arunima Banerjee in Bengaluru; editing by Patrick Graham and Saumyadeb Chakrabarty

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