Housing slump hurts HD Supply sale price

ATLANTA The housing slump and mortgage credit troubles have caused the Home Depot to amend its purchase and sale agreement for HD Supply. HD Supply is being sold to an acquisition corporation formed by affiliates of Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice for $8.5 billion, $1.8 billion less than the $10.3 billion the parties had agreed upon back in June. To assuage its

ATLANTA – The housing slump and mortgage credit troubles have caused the Home Depot to amend its purchase and sale agreement for HD Supply. HD Supply is being sold to an acquisition corporation formed by affiliates of Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice for $8.5 billion, $1.8 billion less than the $10.3 billion the parties had agreed upon back in June.

To assuage its lenders, Home Depot has also agreed to purchase a 12.5% equity interest in HD Supply for $325 million, and to guarantee a $1 billion senior secured loan of HD Supply.

The transaction was scheduled to close Aug. 30, 2007.

In connect ion wi th the amendment, Merrill Lynch, JP Morgan and Lehman Brothers provided to the private equity consortium revised debt commitment letters for 100% of the third party debt financing. After giving consideration for the equity investment and expenses associated with the transaction, the company expects to net approximately $7.9 billion in cash proceeds from the sale.

“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. We are now focused on our retail business,” said Frank Blake, chairman & CEO of The Home Depot.

The company reiterated its earnings outlook that it expects its earnings per share from continuing operations to decline by 12%-15% for fiscal 2007. Consolidated earnings per share are expected to decline by 15%-18% for fiscal 2007. The sale of HD Supply is not expected to have a material impact on the company’s 2007 financial results.

Beginning in February 2007, Home Depot began a strategic review of HD Supply, in an effort to increase the company’s focus on its core retail business. The sale received clearance from Federal antitrust authorities in the beginning of July. The parties said back in June that the transaction was not conditioned upon financing.

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 proceeds from the sale of HD Supply, existing cash on hand and the net proceeds from an anticipated $12 billion issuance of senior unsecured notes. That recapitalization plan is still planned, despite the reduction in the sale price.

The buyback may ultimately involve as much as 30% of Home Depot’s shares over the next two to three years.

Goldman, Sachs & Co. served as the Company’s financial advisor for the amended purchase and sale agreement.

The Home Depot has 2,206 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexico and China. In fiscal 2006, The Home Depot had sales of $90.8 billion and earnings of $5.8 billion. The company employs approximately 364,000 associates.