Home Depot To Sell

Special to CONTRACTOR ATLANTA The Home Depot has reached an agreement to sell its HD Supply wholesale business to a consortium of private equity firms. After a review of alternatives, Home Depot's board of directors unanimously approved the sale of HD Supply to private equity firms Bain Capital Partners, The Carlyle Group, and Clayton, Dubilier & Rice for $10.3 billion. Beginning in February, Home

Special to CONTRACTOR

ATLANTA — The Home Depot has reached an agreement to sell its HD Supply wholesale business to a consortium of private equity firms.

After a review of alternatives, Home Depot's board of directors unanimously approved the sale of HD Supply to private equity firms Bain Capital Partners, The Carlyle Group, and Clayton, Dubilier & Rice for $10.3 billion. Beginning in February, Home Depot began a strategic review of HD Supply in an effort to increase the company's focus on its core retail business. Subject to certain regulatory requirements and contingencies, the sale of HD Supply is expected to close in the third fiscal quarter of 2007. The sale received clearance from federal antitrust authorities in the beginning of July. The transaction is not conditioned upon financing.

"HD Supply is a leader in its industry," said Frank Blake, Home Depot's chairman and CEO. "We are proud of the business we built and know that it will continue to grow and flourish under new ownership. I'd like to thank Joe DeAngelo and the entire HD Supply leadership team for their contributions to The Home Depot."

In a conference call to stock analysts, Blake said DeAngelo will continue as president of the HD Supply operation.

Standard & Poor's Credit Rating Services, which tends to dislike change, downgraded Home Depot's credit rating to BBB+ after the sale was finalized.

During the conference call with analysts, Blake said Home Depot will continue to run its contractor desks at its retail stores.

The financial blogs, which had plenty to say about Home Depot when the wholesale operation was put on the block in February, were generally quiet. At the time, investment Website The Motley Fool wrote that it believed the sale of HD Supply was being done to placate one activist investor.

"New CEO Frank Blake is extending the olive branch to big activist investor Ralph Whitworth, whose Relational Investors owns a 1.3% stake in the doit-yourself home-improvement retailer. He's agreed to name a Whitworth colleague to the board of directors, and he's gone to personally meet with Whitworth regarding other measures that might improve the retailer's performance. That meeting led Blake to consider selling off the company's wholesale supply business," the Website wrote.

At the same time that Home Depot announced closing of the sale of HD Supply to the private equity firms, it announced a $22.5 billion buyback of its stock, financed by the $10.3 billion from the sale of HD Supply, existing cash on hand and the net proceeds from an anticipated $12 billion issuance of senior unsecured notes.

The buyback, which may ultimately involve as much as 30% of Home Depot's shares over the next two to three years, was similarly seen by financial writers as a way to assuage Relational Investors by boosting the stock price.

Financial blogger Lon Juricic, writing at StreetInsider.com, noted: "As you may recall, activist firm Relational Investors was awarded a board seat in February as part of a settlement on corporate governance matters ... It can also be safely assumed that they had something to do with the buyback decision."

"Today's decision reflects our continued commitment to enhancing shareholder value, through an exclusive focus on our retail business and the return of cash to our shareholders," Blake said. "We are confident in the ability to improve productivity in our retail business through investment in these priorities, which will further enhance returns on invested capital as the investments take hold."

"Through the hard work and dedication of HD Supply's 26,000 associates, we have built a business that sets the standard in the industry," DeAngelo said. "We've got a bright future ahead and we're confident we'll continue to prosper."