Home Depot cuts sale price of unit by 18%
Home Depot, the world’s biggest home-improvement retailer, agreed to sell its construction- supply unit for $8.5 billion, cutting the price by 18% as the US credit squeeze curbed demand for leveraged-buyout debt.
By Agencies |
ATLANTA: Home Depot, the world’s biggest home-improvement retailer, agreed to sell its construction- supply unit for $8.5 billion, cutting the price by 18% as the US credit squeeze curbed demand for leveraged-buyout debt, three people familiar with the agreement said.
Bain Capital, Carlyle Group and Clayton Dubilier & Rice negotiated a reduction from the $10.3 billion Home Depot sought two months ago after the firms’ lenders demanded more favourable terms, said the people, who declined to be identified because the final accord hadn’t been signed.
Home Depot agreed to finance $1 billion of the purchase, they said.
Home Depot’s sale was threatened by a slump in investor demand for private-equity debt and the worst housing market in 16 years. Banks, which usually finance transactions and then offload the debt into the capital markets, are demanding lower purchase prices as they grow increasingly concerned that they’ll be left with billions of dollars of loans.
“This is really going to change the balance of power,” said Walter Todd, a principal at Greenwood Capital Associates in Greenwood, South Carolina. Greenwood Capital is affiliated with WealthTrust, which has holdings in nine investment firms that collectively manage $6 billion. Home Depot is selling HD supply to focus on its home-improvement stores.
The supply unit provides tools and lumber to builders and accounts for about 13% of Home Depot’s sales. Home Depot said on August 9 the price for the unit might be reduced from the amount agreed upon in June, and later extended the date to complete the deal to August 23 as lenders became more reluctant to finance the transaction.
The banks funding the sale — Merrill Lynch, JPMorgan Chase and Lehman Brothers had threatened to walk away from the transaction, citing the slump in the unit’s business, people familiar with the agreement said. Home Depot spokeswoman Paula Drake declined to comment on Sunday’s agreement. Representatives of the private-equity firms and banks wouldn’t comment publicly or didn’t return calls seeking comment.
It planned to use the sale proceeds to help fund a $22.5 billion stock buyback. If the sale falls through, the retailer may buy back $12 billion of its shares, chief financial officer Carol Tome said on August 14. The buyback is part of Home Depot CEO Frank Blake’s plan to refocus the company on its retail stores.
Bain Capital, Carlyle Group and Clayton Dubilier & Rice negotiated a reduction from the $10.3 billion Home Depot sought two months ago after the firms’ lenders demanded more favourable terms, said the people, who declined to be identified because the final accord hadn’t been signed.
Home Depot agreed to finance $1 billion of the purchase, they said.
Home Depot’s sale was threatened by a slump in investor demand for private-equity debt and the worst housing market in 16 years. Banks, which usually finance transactions and then offload the debt into the capital markets, are demanding lower purchase prices as they grow increasingly concerned that they’ll be left with billions of dollars of loans.
“This is really going to change the balance of power,” said Walter Todd, a principal at Greenwood Capital Associates in Greenwood, South Carolina. Greenwood Capital is affiliated with WealthTrust, which has holdings in nine investment firms that collectively manage $6 billion. Home Depot is selling HD supply to focus on its home-improvement stores.
The supply unit provides tools and lumber to builders and accounts for about 13% of Home Depot’s sales. Home Depot said on August 9 the price for the unit might be reduced from the amount agreed upon in June, and later extended the date to complete the deal to August 23 as lenders became more reluctant to finance the transaction.
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The banks funding the sale — Merrill Lynch, JPMorgan Chase and Lehman Brothers had threatened to walk away from the transaction, citing the slump in the unit’s business, people familiar with the agreement said. Home Depot spokeswoman Paula Drake declined to comment on Sunday’s agreement. Representatives of the private-equity firms and banks wouldn’t comment publicly or didn’t return calls seeking comment.
It planned to use the sale proceeds to help fund a $22.5 billion stock buyback. If the sale falls through, the retailer may buy back $12 billion of its shares, chief financial officer Carol Tome said on August 14. The buyback is part of Home Depot CEO Frank Blake’s plan to refocus the company on its retail stores.
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