After a marathon negotiating session with some of Wall Street’s top investment bankers, Home Depot agreed to mark down the price of its HD Supply unit by 18 percent, selling the three-year-old business unit for $8.5 billion.
As a further concession, the Atlanta retailer guaranteed $1 billion of the debt and will retain a 12.5 percent stake in the division, which is being taken over by three private equity groups, Bain Capital, Carlyle Group and Clayton, Dubilier & Rice.
By some accounts, Home Depot got caught between the shifting tectonics of a credit compression and a housing market slump. Although the company and the sellers originally settled on a price of $10.3 billion in June this year, investment bankers have become a lot more cautious about lending money over the past two months. Those financing the deal, Merrill Lynch, JPMorgan, Lehman Brothers and Goldman Sachs, were also spooked by declines in the home-building industry, according to observers.
Earlier this month, Home Depot announced that the deal might be restructured. It also extended the closing date of the sale from Aug. 16 to Aug. 23. Negotiations between the company, the private equity groups and the banks extended beyond this date, wrapping up on a Sunday when the Home Depot board voted to accept the lower price and other changes to the agreement.
Many on Wall Street heaved a sigh of relief when both sides shook hands; they had feared a collapsed deal would jeopardize mergers and acquisitions in other industries. For its part, Home Depot is anxious to move forward with a $22.5 billion share repurchasing plan, part of which will be financed with the $7.9 billion in net proceeds from the sale of HD Supply. The closing date for the stock tender offer was Aug. 31.