UPDATE: Home Depot makes HD Supply deal official

Industrial Distribution staff -- Industrial Distribution, 8/28/2007 6:05:00 AM

The Home Depot made it official today: It’s selling HD Supply to a trio of private equity firms for $8.5 billion.

That’s a $1.8 billion discount from the original deal announced in June, which had Bain Capital, Carlyle Group and Clayton, Dubilier & Rice paying $10.3 billion for the Atlanta-based home improvement retailer’s wholesale distribution division.

Home Depot will also pay $325 million to retain a 12.5 percent stake in HD Supply and agreed to cover $1 billion worth of HD Supply’s debt.

The company said it expects to net about $7.9 billion on the sale, slightly less than the roughly $8 billion it spent over the last 10 years buying the 40 companies that make up HD Supply.

'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,' chairman and CEO Frank Blake said.

The deal also includes a provision that increases the amount the private equity buyers will pay and decreases the amount the investment banks financing the remainder—JPMorgan, Lehman Brothers and Merrill Lynch—will guarantee.

The equity players will each pay an extra $150 million, for a total of nearly $2.5 billion; the investment banks will seek to raise $6 billion in debt from investors in the hope that they won’t have to finance the entire sum themselves.

The drastic changes to the deal were spurred by a crunch in the credit market that forced banks to tighten up their lending practices and the ailing the housing market, which comprises the bulk of both the Home Depot’s and HD Supply’s customer base.

Home Depot planned to use the proceeds from the sale to partially fund a $22.5 billion stock buyback plan. That program will go ahead, the company said.

HD Supply ranked second on INDUSTRIAL DISTRIBUTION’s 2007 Big 50 list of distributors, with 2006 sales of $12.1 billion.

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