The Home Depot, the world's largest home improvement store chain, sells its wholesale distribution business and plans to buy back another $22.5 billion in stock. This sale is regarded positively by investors who were disappointed with the former CEO Bob Nardelli.
Five months after Nardelli resignation, the Home Depot announced the $10.3 billion sale of its supply to three private equity firms.
Atlanta-based Home Depot also said it would buy back up to $22.5 billion of the company's shares, or more than a quarter of its current market capitalization.
"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," said Frank Blake, the present CEO of the company.
After the announcement shares of The Home Depot Inc. went up $2, or 5.2 percent. They've traded between $32.85 and $42.01 during the last year.
Frank Blake decided to focus on Home Depot's more than 2,000 retail stores, and sell the Home Depot Supply, which Nardelli regarded as an opportunity for growth.
Patricia Edwards, a retail analyst in Seattle for Wentworth, Hauser and Violich said: "Nardelli had a bit of the GE conglomerate mentality. But a good retail company needs a good shopping experience, and Home Depot was suffering in that area to the point that it upset shareholders and employees"Â.
She added that the changes announced Tuesday give Home Depot shareholders a much-needed "shot in the arm" and allow the company to refocus on its retail stores at a time when it is trying to regain market share from Lowe's Cos. and the entire home-improvement sector is suffering from the current housing slump.
Chief Financial Officer Carol Tome said the proceeds from the sale to Bain Capital Partners, The Carlyle Group, and Clayton, Dubilier & Rice will be invested back in the retail business, including investing in existing stores and building new ones.
The company representative said it will also use the proceeds to fund the $22.5 billion increase in its share repurchase program. Additional funding will come from existing cash on hand and by issuing $12 billion in senior unsecured notes.
Both Standard & Poor's Ratings Services and Moody's Investors Service put Home Depot's short-term credit ratings shows the possible downgrade because the company will incur the extra debt, which was the result several companies' acquisitions made by the Hme Depot recently in order to create the Supply division.
When Home Depot announced in February that it is going to sell the Home Depot Supply, analysts set its price between $8 billion and $11 billion, "so they came in at the high end and got a fairly fair price," Edwards said.
Clayton, Dubilier & Rice partner David Novak and Steve Zide, managing director of Bain Capital, said in interviews Tuesday that the company is very well positioned among competitors and they expect it to grow.
"We're very excited about partnering with the Home Depot supply team, giving them the opportunity to execute their own plan", Zide said.
The buyers said that Joe D'Angelo, Home Depot's chief operating officer, will continue to lead the supply division after the acquisition, which is expected to close in the third quarter.
Founded in 1978, The Home Depot, Inc. is the world's largest home improvement specialty retailer and the second largest retailer in the United States with fiscal 2006 sales of $90.8 billion and earnings of $5.8 billion. The Home Depot has been recognized by Fortune magazine as the No. 1 Most Admired Specialty Retailer and the No. 13 Most Admired Corporation in America for 2006. The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index.- Alla Harutyunyan for HULIQ.COM
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