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June 15, 2007 - Two Deals For HD Supply?

June 15, 2007
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Bloomberg.com reports today that two private-equity groups will each offer separate competing bids of about $10 billion for HD Supply.

The first group is comprised of Bain Capital LLC, Carlyle Group and Clayton Dubilier & Rice Inc. That last company recently agreed to buy ServiceMaster Co. The other includes Thomas H. Lee Partners LP and CCMP Capital Advisors LLC.

At least a few of the players aren’t strangers to investing in the professional contractor supply market. Clayton Dubilier & Rice had previously bid on Hughes Supply, but lost out to Home Depot. Lee Partners and CCMP sold National Waterworks to Home Depot, which is now a part of HD Supply.

No one from any of the investment companies or from Home Depot would confirm the possible move. However, final bids are due to Home Depot today.

Home Depot announced last February it might sell its wholesale division. HD Supply was largely the work of Robert Nardelli, the company’s former chief executive officer. Nardelli aggressively bought wholesale distributors, including Hughes Supply last year.

HD Supply had sales of $12.1 billion last year. Home Depot may have spent as much as $8 billion to acquire the 38 companies that make up the unit, David Schick, an analyst with Stifel Nicolaus & Co., wrote in a February research note.

At one time, Nardelli predicted HD Supply would generate 20 percent of Home Depot’s overall revenue. HD Supply wasn’t far off that mark. It currently accounts for 13 percent of Home Depot’s revenue.

But Wall Street criticized the wholesaler acquisitions and believed the money and management energy would be better put to use reinvigorating the retail side. The stock, down 5.9 percent this year through yesterday, was the worst performer in the Dow Jones Industrial Average before today.

Home Depot ousted Nardelli in January after the former General Electric Co. executive's pay package, abrasive style and aggressive acquisition strategy alienated investors.

Ralph Whitworth, an activist shareholder, called Nardelli’s HD Supply expansion “strategic adventurism” and urged Home Depot to sell or spin off the division.

Since then, Frank Blake, the new CEO, has made various moves to restore the retail business. His February announcement on HD Supply sent the company’s stock price to a 10-month high.

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