It looks like Home Depot's sale of its wholesale division will go through. But, to add insult to injury, Home Depot (NYSE: HD) had to drop the price of Home Depot Supply from $10.3 billion to about $8.5 billion to keep private equity buyers in the deal. Then it had to guarantee $1 billion of the debt being taken on to buy the operation because large banks recoiled at the idea of loaning money to a company linked to the housing business.
Bain Capital, Carlyle Group, and Clayton, Dubilier & Rice had made the original offer. But, as the mortgage industry began to implode and home sales dropped, large banks wanted to walk away from the deal. All of the parties had a reason to keep the buy-out alive. As The Wall Street Journal writes: "Both sides had agreed that if the financing for HD Supply fell apart, it would spook debt markets further, potentially casting more doubt on a series of higher-profile transactions."
The big cut in price raises the question of whether or not Home Depot shareholders are getting a good deal. At $10.3 billion, the purchase price was at least in line with the value that the market gives Home Depot. The world's largest home supply company planned to use the money to buy back shares and perhaps pay down some of its $11 billion in debt.
But, at some point, the price is simply too poor for Home Depot shareholders to take. And, that is what may have happened.
Douglas A. McIntyre is a partner at 24/7 Wall St.
