The Home Depot(R), the world's largest home improvement retailer, announced on July 10 the launch of a tender offer for 250 million shares of its common stock at a price range of $39.00 to $44.00 per share. In addition, the Company updated its fiscal 2007 sales and earnings per share guidance.
"The two key areas of focus for our capital allocation strategy are to invest in our core retail stores and to return capital to our shareholders," said Frank Blake, chairman and CEO. "Despite a challenging housing environment, we remain committed to both, and today's tender launch is a clear demonstration of our commitment to returning cash to shareholders."
Tender Offer
On June 19, 2007, the Company announced a recapitalization plan whereby its board of directors authorized a $22.5 billion increase in its share repurchase program. It is the Company's intention to repurchase up to $22.5 billion in shares as soon as practicable. As part of its plan, the Company's board of directors authorized a self-tender offer for the purchase of up to 250 million shares of the Company's common stock. The tender price range is $39.00 to $44.00 per share. The tender offer is scheduled to expire on August 16, 2007, and is subject to the terms and conditions described in the Offer to Purchase and offering materials.
Under terms of the tender offer, shareholders are given an opportunity to specify prices, within the stated price range, at which they are willing to tender shares. Upon receipt of the tenders, The Home Depot will select a final price that enables it to purchase up to the stated amount of shares from those shareholders who agreed to sell at or below the Company-selected price. There is no guarantee that shares tendered will be purchased. The Home Depot may purchase up to an additional 39.5 million shares in the tender offer without extending the tender offer.
The Home Depot said the tender offer will give shareholders who are considering the sale of all or a portion of their shares an opportunity to determine the price, within a range, at which they are willing to sell. If the Company purchases their shares, the shareholders who tender may avoid the normal transaction costs associated with market sales. The Company is not making any recommendation to its shareholders regarding the tendering of shares.
The purchase price for the shares in the tender is expected to be funded with proceeds from the sale of HD Supply and cash on hand.
The Lead Dealer Manager for the tender offer is Lehman Brothers and the Co-Dealer Manager is Merrill Lynch & Co. The Information Agent for the tender offer is D.F. King & Co., Inc. The Depositary for the tender offer is Computershare, Inc.
Updated 2007 Financial Outlook
The Company also updated its 2007 financial targets to reflect HD Supply as a discontinued operation. In May, the Company said that it expected earnings per share to be down 9% for the year. This guidance included an estimated eighteen cents of earnings per share contribution from HD Supply for the last six months of fiscal 2007. Had the Company excluded the HD Supply earnings contribution at that time, its earnings per share guidance would have been a decline of 15% for fiscal 2007. Given the announced sale of HD Supply and based on weaker conditions in the housing market, the Company said that it now expects its earnings per share to decline by 15-18% for fiscal 2007, with total retail sales down 1-2% and comparable store sales down mid-single digit. The Company also stated that it would open approximately 108 new stores in fiscal 2007. Finally, the Company expects its operating margin to contract by 120-150 basis points due to negative same store sales and its continued investment in its core retail operations.
The fiscal 2007 earnings per share targets reflect 52 weeks and do not include the impact of the 53rd week. The Company will have 53 weeks of operating results in its fiscal 2007 financial results. The Company projects that the 53rd week will add approximately three cents to its consolidated earnings per share guidance for fiscal 2007. Additionally, the Company's earnings per share guidance does not include the gain on the sale of HD Supply or any earnings per share accretion arising from the announced tender offer.
"While we expect the housing market to remain challenging for the rest of 2007 and into 2008, we plan to continue our reinvestment plans for the long-term health of our business, understanding that it will put short-term pressure on earnings," said Carol Tome, CFO and executive vice president - corporate services. "We are confident that over the long term, we will deliver productivity improvements and enhance returns on invested capital as the investments take hold." -Home Depot
