Print

Email story

Comment

Letter to the editor

Home Depot sheds HD Supply

The $10.3-billion sale to three equity firms allows the company to refocus on retail.

By MARK ALBRIGHT
Published June 20, 2007

Giving up the ghost on an old vision, Home Depot Inc. on Tuesday refocused its attention on consumers by agreeing to sell its wholesale construction supply business to a trio of private-equity firms for $10.3-billion.

The deal puts HD Supply - which was built through an $8-billion acquisition binge that snagged St. Petersburg-based Cox Lumber Co. and Orlando-based Hughes Supply Inc. - in the hands of Bain Capital Partners, Carlyle Group and Clayton, Dubilier & Rice.

Expected to be completed by fall, the long-expected sale unravels Home Depot's split personality to focus on reviving its retail home-improvement business. Both retail and wholesale businesses have been stung by the housing industry slump. Some analysts expected the supply unit would fetch up to $13-billion. But the Atlanta-based company settled for less to put the abandoned vision of its former controversial chief executive, Robert Nardelli, in the past.

"It's good the company is slimming down and focusing on core retail, " said Steve Neimeth, a portfolio manager with AIG SunAmerica Asset Management.

Based in Atlanta but maintaining a big division headquarters in Orlando, HD Supply generates $12-billion of Home Depot's $91-billion annual revenue and employs 26, 000 people. In the past year, Home Depot spent $4.4-billion buying 12 more business units before reversing field.

But once Nardelli was ousted, replacement CEO Frank Blake charted a course to reverse the company's flagging customer satisfaction ratings among retail customers and stop losing ground to rival Lowe's Cos. Inc.

In the most recent quarter, HD Supply revenues declined 6.5 percent in comparable business units from a year ago. For fiscal 2007, Home Depot on Tuesday forecast a meager "1 to 2 percent" sales gain overall and a 9 percent decline in earnings per share, including HD Supply.

Home Depot plans to use the sale proceeds for a massive stock buyback plan that is being increased to $22.5-billion, enough to buy up to 30 percent of all outstanding shares. Home Depot's stock closed at $38.27, up 31 cents, on the news.

Rating agencies, however, are considering downgrading the company's debt ratings because much of the buyback will be paid by issuing $12-billion in new notes.

Mark Albright can be reached at albright@sptimes.com or (727) 893-8252.

[Last modified June 19, 2007, 22:54:40]