By Mark Clothier and Jason Kelly
June 19 (Bloomberg) — Home Depot Inc., the world’s largest home-improvement retailer, agreed to sell its contractor- supplies unit to three buyout firms for $10.3 billion and may purchase a record $22.5 billion of its stock.
The buyback amounts to 30 percent of the company’s outstanding shares. The sale to Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice may close before Oct. 28, Home Depot said today in a statement. The unit, which accounted for 13 percent of Home Depot’s $91 billion in sales last year, sells tools and lumber to construction companies.
Chief Executive Officer Frank Blake, who took over in January, is reversing predecessor Robert Nardelli’s plans to expand HD Supply. Blake’s priority is improving Home Depot’s retail stores, and buying back the most stock in Home Depot’s history may help reverse two years of declining shares.
“That’s putting your money where your mouth is,” said Walter Todd, who helps manage $800 million at Greenwood Capital Associates LLC in South Carolina. “It certainly helps in the short term.”
The repurchase is six times a $3.5 billion buyback Home Depot announced in August. The company will finance it with proceeds from the sale, existing cash and $12 billion of bonds. Before today, the company bought back 19 percent of stock since late 2002.
The buyback follows Wal-Mart Stores Inc.’s $15 billion plans this month, and International Business Machines Corp.’s $15 billion addition to its stock buyback program in April.
`Impressive Number’
Expedia Inc., the world’s largest Internet travel agency, today offered to buy 42 percent of its outstanding shares for $3.5 billion.
Home Depot’s stock purchase will “buy management some time to turn things around,” said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich, whose $9.6 billion in assets include about 19,000 Home Depot shares. “It’s a very impressive number.”
Home Depot is selling the division amid the most severe housing recession in 16 years. Homebuilder shares are the worst performers on the Standard & Poor’s 500 index this year, down 21 percent, and housing starts fell 2.1 percent in May.
Shares of Home Depot rose $2, or 5.2 percent, to $40.27 at 7:42 p.m. in extended U.S. trading. They increased 31 cents in New York Stock Exchange composite trading before the announcement.
Analysts including Colin McGranahan of Sanford C. Bernstein & Co. expected the unit to sell for as much as $13 billion when Home Depot announced in February it was considering a sale. The decision to look for alternatives for HD Supply was part of a review conducted in November, Home Depot said.
Management Moves
Home Depot paid as much as $8 billion to acquire 38 companies over the past several years for HD Supply, David Schick, an analyst with Stifel Nicolaus & Co., wrote in a research note Feb. 12.
Joe DeAngelo, Home Depot’s chief operating officer, will stay with HD Supply, Home Depot spokesman Tony Wilbert said. The unit has 26,000 employees.
Nardelli expanded the wholesale unit through the acquisitions. Some investors said the expansion of the division, where sales rose 46 percent to $3.1 billion in the quarter that ended April 29, distracted Home Depot from focusing on its retail stores.
Blake has adopted policies to allay shareholder criticism of the company’s oversight under Nardelli, who was ousted in January over his pay. The company increased the number of directors needed to approve executive compensation and agreed to disclose some political donations for the first time.
Trailing Lowe’s
Lowe’s Cos., which operates about 1,400 stores in the U.S., has outperformed Home Depot in recent years with newer stores and customer service that gets higher ratings. Home Depot has 2,170 stores, about 1,895 of them in the U.S.
Home Depot shares fell less than 1 percent last year, compared with a 6.5 percent drop for Lowe’s.
Clayton Dubilier, based in New York, specializes in buying complicated businesses that often include retail or service components. Founded in 1978, the firm recently agreed to buy ServiceMaster Co., a home-services company whose brands include ChemLawn, Merry Maids and Terminix.
Clayton Dubilier joined with Washington-based Carlyle to buy Ford Motor Co.’s Hertz rental car unit in December 2012; the firms sold Hertz shares to the public less than a year later.
Boston-based Bain has this year purchased companies including OSI Restaurant Partners Inc., the operator of Outback Steakhouse, and is set to acquire Clear Channel Communications Inc.
To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net Jason Kelly in Atlanta at jkelly14@bloomberg.net .
