Home Depot to Buy Former Unit HD Supply in $9.1 Billion Deal

By Richard Clough
(Bloomberg) — Home Depot Inc. agreed to buy building
products distributor HD Supply Holdings Inc., reuniting the
home-improvement retailer with its former subsidiary more than a
decade after they split apart.
Home Depot will buy all outstanding shares for about $56
apiece, according to a statement Monday, representing a premium
of about 25% over HD Supply’s closing price on Friday. With 162
million shares outstanding, the offer is valued at almost $9.1
billion. Including net cash, the deal has an enterprise value of
about $8 billion, the companies said.
The acquisition brings back together two companies that
used to be under the same roof and will give Home Depot more
exposure to the professional contractor side of the business.
Like do-it-yourself repairs, that segment has boomed during the
pandemic as Americans want to improve the homes they’re spending
more time in.
Shares of HD Supply jumped as much as 29% before regular
trading in New York, and Home Depot increased less than 1%. HD
Supply was up 11% through Friday’s close, while Home Depot rose
27% over that span.
One of the largest industrial distributors in North
America, HD Supply provides everything from bleach, to doors and
ceramic tile to about 500,000 customers from 270 branches and 44
distribution centers, according to its annual report.
HD Supply is “a good business with solid margins,” Chuck
Grom, an analyst with Gordon Haskett, said in a note. The
company has faced underinvestment in recent years, giving the
buyer the opportunity to improve the business, he said. The tie-
up could add as much as 33 cents a share to Home Depot’s
earnings, Grom added.
The deal adds to the momentum for Home Depot, which along
with rival Lowes Cos. was deemed an essential retailer early in
the pandemic and remained open even as many stores shut down for
months. The HD Supply transaction, to be funded by cash on hand
and debt, is expected to be completed in Home Depot’s fiscal
fourth quarter, which ends Jan. 31.

Professional Sales

Professional customers currently account for about 45% of
Home Depot’s sales, and HD Supply could help it cement its
leadership position, said Drew Reading, an analyst with
Bloomberg Intelligence. “Though HD Supply has exposure to slower
growth commercial end-markets, sales trends among pros continue
to improve and may accelerate in 2021.”
Home Depot sold the construction-supply unit to a group of
buyout firms — Carlyle Group LP, Bain Capital LLC and Clayton,
Dubilier & Rice LLC — in 2007. That deal was initially valued
at $10.3 billion including debt, but in the midst of the housing
crash, it was scaled back to $8.5 billion. The chain then went
public in 2013.
Monday’s announcement comes about a week after Bloomberg
News reported that Lowe’s had recently approached HD Supply and
that the companies were in preliminary talks, citing people
familiar with the matter at the time. The report also said it
was unclear whether there were discussions with other suitors.
Lowe’s subsequently said it isn’t in talks and doesn’t plan to
pursue a transaction.

–With assistance from Gerald Porter Jr. and Matt Townsend.

To contact the reporter on this story:
Richard Clough in New York at rclough9@bloomberg.net
To contact the editors responsible for this story:
Anne Riley Moffat at ariley17@bloomberg.net
Richard Clough