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Negotiations with private equity firms Bain Capital, Carlyle Group and Clayton Dubilier & Rice, and their banks, continued as a midnight deadline approached last night. No announcement was made at that time. According to The Associated Press, talks are still going on today.
The banks - Merrill Lynch & Co., JPMorgan Chase & Co. and Lehman Brothers Holdings - threatened to walk away from the HD Supply deal because of the slump in its business, noted Bloomberg. The worst U.S. housing market in 16 years has slowed home construction, which HD Supply counts on for revenue.
HD Supply accounted for $12.1 billion of Home Depot’s $91 billion in sales last year.
On. Aug. 9, Home Depot said it might need to cut the price of the HD Supply business; later it changed the closing date of the deal from Aug. 16 to yesterday.
“It’s unclear to me if the banks are saying they’re unwilling to lend, or unwilling to lend at a cost acceptable to the private equity guys,” Walter Todd, a principal at Greenwood Capital Associates, told Bloomberg. “Clearly there’s a lot of turmoil in the credit markets right now.”
“If the deal falls through, Home Depot can seek a termination fee from the buyers of more than $309 million under certain circumstances,” said the AP. “One such circumstance is if Home Depot terminates the agreement as a result of the buyers’ breach of its obligations to effect the closing, including a failure to obtain financing.”
The dispute is just an example of the tensions that have surfaced between private equity firms and their lenders as investors’ demands for leveraged buyout debt has weakened, Bloomberg reported.
Home Depot had planned to use the sale proceeds to help fund a stock buyback. If the sale falls through, the company may only buy back $12 billion of its shares, rather than the $22.5 billion it had originally wanted to purchase.