Aug. 24, 2007 - HD Supply Deal In Jeopardy, Price May Be Lowered By $1 Billion
August 24, 2007
According to an online Bloomberg
report, Home Depot may reduce its original $10.3 billion price tag for HD
Supply by about $1 billion in order to salvage the deal.
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
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,
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.