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Home Depot Moves on Reduced Supply Sale
Tightening credit markets and sluggish housing figures sent The Home Depot back to the drawing board on the proposed sale of its professional supply business, but a significant cut in the sale price sealed the deal yesterday. A consortium of private equity firms—including the Carlyle Group, Bain Capital and Clayton Dubilier & Rice, as well as the banks throwing their financial weight behind the deal, Lehman Brothers, JPMorgan Chase and Merrill Lynch—will acquire Home Depot Supply for $8.5 billion, about $1.8 billion less than an original agreement.
The professional supply arm of the business was built up under former chief executive officer Robert Nardelli as a way to drum up additional revenue outside of Home Depot’s retail chains. The company began looking for alternatives for the supply unit once current CEO Frank Blake took office earlier this year.
As part of the amended agreement, the involved parties will all contribute funds to reduce the amount of debt involved in the transaction. Home Depot will purchase a 12.5 percent equity interest in the whole business for $325 million and will guarantee a $1 billion senior secured loan of Home Depot Supply.
“Despite the softness in the financing and residential construction markets, the terms of the HD Supply sale deliver shareholder value today and in the future as we will share in HD Supply’s upside potential,” Blake announced in a statement. “We are now focused on our retail business.”
The renegotiated deal caught the attention of financial analysts since it includes a significant amount of debt in the transfer. Bankers and other investors have been interested to see if new limits on credit might affect other big buyouts that are pending in other markets.
HD Supply is a wholesale distribution unit focused on serving the needs of professionals in the infrastructure, construction, maintenance, and repair and remodel markets. It has nearly 1,000 locations in North America and employs more than 26,000 people, according to the company.
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