Home Depot may get less for HD Supply sale

Home Depot Inc said it may have to accept a lower price for HD Supply, the contractor-supply unit it had earlier agreed to sell to buyout firms Bain Capital LLC, the Carlyle Group and Clayton Dubilier & Rice for $10.3 billion. HD Supply provides tools, lumber and other construction material to builders, and brings in 13 per cent of the retailer's revenue.

Finance for the purchase may be a problem, as investors hit by losses resulting from the subprime mortgages issue have begun to turn away from risky debt. The deal was to be funded with about $2 billion of equity from the sponsors and, according to a source, Merrill Lynch, J P Morgan Securities and Lehman Brothers were to come up with the debt for the balance. If the sale of HD Supply falls through, the buyout firms have to pay Home Depot a break-up fee of $309.8 million.

Home Depot shares fell 5.3 per cent in New York Stock Exchange composite trading on 9 August to just under $36, the biggest single-day slump in over four years. The world's largest home-improvement retailer is now in talks to restructure the sale, forcing it to scale back its stock repurchase plan. It has cut the price it's willing to pay; it's now offering $37 to $42 a share, down from $39 to $44 previously. Investors who had agreed to sell their shares at the higher price now won't get it. They can withdraw and tender the shares again if they want to. About 3.05 million shares had been tendered on 9 August. The closing date for the buyback offer had been extended to 31 August.

HD Supply accounted for $12.1 billion of the Atlanta-based Home Depot's sales revenue of $91 billion last year. Present CEO Frank Blake's decision to shed the unit is a complete reversal of his predecessor Robert Nardelli's objective of expanding it. Nardelli left Home Depot in January. He was appointed CEO of auto major Chrysler on 6 August by its new owner, Cerberus Capital Management LP.

Other top Home Depot executives have left too, including Jim Stoddart, who was in charge of generating new business; customer service head Jose Lopez; lawyer Frank Fernandez; and human resources czar Dennis Donovan.