The Home Depot Reconsiders HD Supply
Frank Blake, the new chairman/CEO, has expressed his intent to focus more on the retail side of the business. In a question-and-answer session with analysts, he said that while the HD Supply business had an exceptional year in 2006 and gained share throughout the fourth quarter, he believes that Home Depot should be one entity.
“We are not going to be a conglomerate structure with different business segments,” he said.
One of his first moves was making Joe DeAngelo, executive vice president of HD Supply, the chief operating officer across all of Home Depot. Blake said he asked DeAngelo to consider how to drive an enterprise-wide advantage from the HD Supply business and the orange box.
He said that based on the focus needed on retail, he recommended the board look at other options, because once HD Supply launches into integrating, any future changes would be harder.
The decision to sell or not to sell will be driven by how best to create shareholder value, Blake said.
Regarding serving the pro market, Blake said that “within the orange box itself, we have enormous opportunities to improve our performance with the pro.” He said they have recently learned that 2% of the retail Home Depot customers drive nearly 30% of its sales and they tend to be pros.
Wall Street analysts estimate HD Supply’s worth in the $9-10 billion range. Ferguson’s British parent, Wolseley, has been identified as a potential buyer in the media. However, last month a story surfaced in Great Britain that a private equity firm might attempt a takeover of Wolseley. Visit www.supplyht.com for the latest news on Home Depot, HD Supply and Wolseley.
Supply House Times asked Rick Schwartz, president and CEO of WinWholesale, to comment on the HD Supply situation. Here is what he said:
Q: Who would be a likely buyer?
A: “It’s difficult to say. Home Depot paid a premium when they acquired Hughes Supply, so they’re going to do their best to get the highest return on their investment. I can see several scenarios playing out, including an acquisition by a private equity group, spinning off into a separate publicly-held company, or divesting the business in pieces.”
Q: What impact would the sale of Home Depot Supply to one or more other wholesalers have on the overall PHCP wholesaling industry?
A: “It would depend on the buyer or buyers. The industry has been consolidating for the past several years, so this would be a natural evolution of what we’ve seen recently. Home Depot Supply is already the second largest player in our industry, so an acquisition by another large wholesaler could put them in an even better position to leverage their size for activities such as term negotiation with vendors. However, there are still intangibles required for successful operations such as customer service, product knowledge and availability that are difficult to predict in a situation like this.”