updated 2/6/2007 8:24:59 AM ET 2007-02-06T13:24:59

The Home Depot Inc. said Monday it is giving a seat on its board to an investment group that wants the company to consider, among other things, a leveraged buyout as a way to generate shareholder value.

The group, Relational Investors LLC, had threatened a proxy fight over the home-improvement company’s strategic direction, part of an undercurrent that led to the resignation of former chief executive Bob Nardelli.

Under an agreement announced Monday night, David H. Batchelder, a principal of Relational Investors, will join Home Depot’s board Feb. 22, and Relational will to drop the proxy challenge, the two sides said.

Batchelder also will be appointed to the board’s leadership development and compensation committee and to the audit committee, Home Depot chairman and CEO Frank Blake and Ralph V. Whitworth, a co-founder of Relational, said in a joint statement.

“We have been actively listening to our shareholders and look forward to continuing the dialogue,” Blake said.

Relational Investors is a private investment adviser that manages about $7.5 billion and owns approximately 26.5 million shares — about 1 percent — of Home Depot.

Because of shareholder discontent over stock price and executive compensation, Relational informed the Atlanta-based company in December that it would seek at the 2007 annual meeting to require the board to establish a special committee to review the company’s strategic direction and management performance.

In a Dec. 13 letter to Home Depot, Relational said it sees “an opportunity for substantial appreciation” in common stock value “through changes in the company’s strategic direction, restructuring and recapitalization, a partial or complete sale or buyout of the company and/or a major recomposition of the executive team.”

Home Depot said at the time that the board would oppose the move. Relational planned to solicit proxies to have its proposal adopted and possibly nominate one or more directors at the 2007 annual shareholders meeting.

Nardelli resigned early last month and received a controversial severance package worth about $210 million.

In their statement, Home Depot and Relational said the board will nominate and support Batchelder for the next three years, so long as Relational continues as a significant shareholder. In return, Relational will support each slate of directors nominated by the board.

Home Depot said it also “reiterated its commitment” that the retirement age for directors Kenneth G. Langone, Milledge A. Hart III, John L. Clendenin and Claudio X. Gonzalez would not be waived beyond the 2008 annual meeting.

The retirement age for Hart, Clendenin and Gonzalez was waived for the 2007 term, the company said, “in order to retain the board members’ experience and deep knowledge of the company’s business and key personnel to help ensure a smooth management transition” in wake of Blake’s appointment.

Batchelder, also a director of Washington Group International Inc. and ConAgra Foods Inc., commended the Home Depot board “for demonstrating accountability and responsibility in responding to, and collaborating with, shareholders like Relational.”

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