After months of speculation about the possible sale of HD Supply, The Home Depot's wholesale distribution arm, a deal was struck last month between the home improvement leviathan and a group of private equity firms.

Bain Capital Partners, the Carlyle Group, and Clayton, Dubilier & Rice will pay $10.3 billion for the business. The deal is expected to close in the third quarter.

In conjunction with the sale, HD announced a $22.5 billion increase in its share repurchase program, funded in part from the proceeds of the divestiture.

In a statement announcing the sale, CFO Carol Tome described the deal as transformational for The Home Depot, adding that “... this recapitalization plan allows us to return significant capital to our shareholders, improve the efficiency of our balance sheet by lowering our cost of capital, while at the same time retaining strong financial and operational flexibility.”

The sale has numerous implications for The Home Depot and its former subsidiary, the brainchild of former CEO Robert Nardelli.

The division was created in 2000 when Nardelli began an aggressive $8 billion acquisitions campaign, snapping up 38 companies to form HD Supply. The spree included last year's $3.2 billion purchase of Hughes Supply, which more than doubled the division's size.

For HD, the move repudiates Nardelli's strategy and underscores its commitment to its core retail business.

The former CEO believed synergies between the company's retail and wholesale businesses would increase profits, but those failed to materialize despite one of the biggest housing booms in history in the late 1990s and the early years of this decade.

Nardelli had planned to grow the distribution business he started in 2000 until it generated 20 percent of the retail gargantuan's revenues. HD Supply's $12.1 billion in sales made up 13 percent of The Home Depot's revenues last year.

The detour into wholesale supply, coupled with Nardelli's abrasive style and HD's poor stock performance, led to his ouster this year. And his more than $210 million severance package drew further outrage from shareholders and prompted worldwide discussions about excessive executive compensation.

Current chairman and CEO Frank Blake, once a Nardelli protégé, broached the idea of a possible sale of HD Supply soon after taking control of the company in January.

Blake said improving HD's retail business is the company's highest priority.

“This year alone we will spend over $2 billion in support of our top five retail priorities. 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,” Blake said in announcing the sale June 19.

“We as a company are solely focused on retail,” Tome added.

Peter Cohan, a management consultant and adjunct business management professor at Massachusetts' Babson College, said Nardelli's decision to stray from Home Depot's core retail business was “a colossal blunder.”

“The reason it was such a lousy investment is that [HD Supply] works with builders who have much greater negotiating leverage than individual homeowners. The result is that the margins Home Depot earned in selling home building supplies to builders were lousy,” Cohan wrote in his blog.

The sale had an immediate negative impact on Home Depot —in June, Fitch Ratings downgraded its rating of the company from “A+” to “A-“ and gave it a negative outlook.

Other reports predicted that both Standard & Poor's Ratings Services and Moody's Investors Service were likely to downgrade Home Depot's short-term credit ratings because of the debt it will incur from the sale and the competition it faces from home improvement retailer Lowe's.

The immediate future of HD Supply isn't clear either, though Joe DeAngelo, COO and executive vice president, said the now-privately owned company's prospects are good.

“This is the right decision for our business, at the right time,” he said in an e-mailed statement to ID in June. “The private equity firms' decision validates what we at HD Supply already know, that our industry holds tremendous opportunity and the HD Supply businesses have what it takes to lead it: knowledgeable people, long-cultivated relationships and dedication to providing superior customer service. ...

“This sale positions our businesses for continued growth and success under new ownership. Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice are three of the most well-known and respected private equity firms in the world, and together with our HD Supply leadership team, we will build the exciting next chapter in our history.”

Executives at CD&R and Bain have said they expect to grow the company.

HD Supply's more than $12 billion in revenues last year propelled it to second on INDUSTRIAL DISTRIBUTION's 2007 Big 50 list of distributors.

Babson's Cohan told the Orlando Sentinel that HD Supply's new owners might try to wring efficiencies from the company, which could mean layoffs among its 26,000 employees.

Or the equity firms could split the business and sell it off in parts; both actions are common in equity buyouts. The latter scenario would give former Hughes Supply management a crack at reclaiming the company.

Cohan said Bain, CDR and Carlyle might be making a 'cyclical play,' acquiring HD Supply at a low ebb in its value with the aim of selling it once conditions improve.

“They would have paid more a year or so ago, so they are getting it at a rock-bottom price,” Cohan said.

Earlier this year, estimates of the division's value ranged as high as $13 billion.

The ripples from the sale were strong enough to cross the Atlantic, reaching British building supply giant Wolseley plc, which ranked first on ID's Big 50 this year with revenues of $25.3 billion.

That's because a major player in the sale, CDR partner Charles Banks, is the wholesaler's former CEO, the Hampton Roads, Va., Daily Press reported.

The sale means Banks could wind up leading his former employer's largest North American competitor.