updated 8/27/2007 8:33:13 AM ET 2007-08-27T12:33:13

The Home Depot Inc. has tentatively agreed to sell its wholesale distribution business to a group of private equity firms for $8.5 billion, or $1.8 billion less than originally planned, a person with direct knowledge of the situation said.

The lower price reflects the tighter conditions that have arisen in the credit markets, and it would be one of the highest profile revisions yet among big deals involving private equity buyers.

Even though Home Depot is accepting less than anticipated for the unit, the deal is expected to allow it to proceed with its plan to buy back up to $22.5 billion in company shares.

A Home Depot spokeswoman declined to comment.

But shares of the world’s largest home improvement retailer were up 67 cents, or 1.9 percent, to $35.35 in premarket trading on Monday.

Home Depot will retain a 12.5 percent stake in the unit known as HD Supply and will guarantee $1 billion of the debt the buyers will take on to complete the transaction, the person with direct knowledge of the situation said Sunday.

The person, who asked not to be identified because he was not authorized to speak publicly, said the revised deal was hammered out during talks over the weekend.

The deal reached in June had called for a sale price of $10.3 billion to a buyer group that included the firms Bain Capital Partners, Carlyle Group and Clayton, Dubilier & Rice.

Home Depot had hinted previously that the deal could fall through or the price would have to be reduced.

The Atlanta-based retailer had said publicly the deal was not contingent on financing, but there were scenarios under which a party could walk away. According to a regulatory filing, the agreement could have been terminated at any time prior to the completion of the sale by mutual consent.

The original agreement contained customary termination rights based on breaches of representations or covenants subject to the materiality standards of the agreement and rights of the parties to cure such breaches.

If the deal had fallen through, Home Depot could have sought a termination fee from the buyers of more than $309 million under certain circumstances. One such circumstance was if Home Depot terminated the agreement as a result of the buyers’ breach of its obligations to effect the closing, including a failure to obtain financing.

Since the deal was announced in June, financial markets have faced turmoil and Home Depot had said it was talking with the buyers about restructuring the agreement. The deal was to have been completed Thursday.

Home Depot operates 2,200 stores in the United States, Canada, Mexico and China. HD Supply serves contractors, homebuilders and other business customers.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.71%
$30K home equity loan FICO 5.26%
$75K home equity loan FICO 4.70%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.42%
13.42%
Cash Back Cards 17.94%
17.94%
Rewards Cards 17.14%
17.14%
Source: Bankrate.com