Sun Buying Hewden Stuart

TORONTO (Reuters) – Finning International (FTT.TO: Quote, Profile, Research) the world’s largest Caterpillar (CAT.N: Quote, Profile, Research) equipment dealer, said on Wednesday it sold its British equipment rental business for 110.2 million pounds ($166 million) to an affiliate of Sun European Partners LLP.

Finning said it would use proceeds from the sale of Hewden which has 63 locations and 1,300 employees, to reduce debt.

It said the deal would add to shareholder return on equity, but would result in a second-quarter accounting loss of about C$247 million ($239.5 million) or C$1.44 per share.

The accounting loss includes the realization of C$101 million of foreign exchange losses, and a C$68 million charge relating to the recognition of the unfunded pension liability which the buyer assumed, the company said.

The balance of C$78 million, or 45 Canadian cents a share is the loss on Finning’s net carrying value of Hewden, net of tax.

Finning said it would report Hewden as a discontinued operation in the second quarter of 2010.

“After a comprehensive review, we have determined that for strategic and financial reasons, it is in our shareholders’ best interest to divest Hewden,” Mike Waites, chief executive of Finning, said in a release.

“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 said the deal was comprised of 90.2 million pounds in cash, an interest bearing 5-year loan note receivable of 20 million pounds, and a 5 percent equity warrant subject to certain conditions being met.

Waites said the deal was “the final step in rationalizing” Finning’s British operations.

“Combined sale proceeds from this transaction, Hewden Tools, and the dealership’s Materials Handling divisions total almost C$600 million,” Waites said.

Finning UK will continue to operate 20 branches in Britain, with 1,470 employees serving the construction, mining and power systems markets.

Shares of Finning, which releases its first quarter results next Thursday, were down 57 Canadian cents at C$18.56 on the Toronto Stock Exchange on Wednesday morning.

Sun European Partners LLP, is the European adviser to U.S.-based investment firm Sun Capital Partners Inc.

($1=$1.03 Canadian) ($1=.6564 Pound) (Reporting by John McCrank)