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Home Depot may get $1.2 billion less for unit

The Home Depot Inc. and a group of private equity firms are discussing cutting the $10.3 billion price on the company’s proposed sale of its wholesale distribution business by about $1 billion, a person with direct knowledge of the situation said Friday.
/ Source: The Associated Press

The Home Depot Inc. and a group of private equity firms are discussing cutting the $10.3 billion price on the company’s proposed sale of its wholesale distribution business by about $1 billion, a person with direct knowledge of the situation said Friday.

Talks were continuing Friday on terms of the sale which was to have been completed on Thursday.

The person said Home Depot has made it known to the buyers that it is willing to lower the price agreed to in June, but it was still unclear whether the banks backing the buyers were willing to fund the transaction even at the lower price.

The person, who asked not to be identified because he was not authorized to speak publicly, said the price cut being discussed is about $1 billion.

A company spokeswoman declined to comment Friday on any aspect of the talks.

Home Depot shares rose 45 cents, or 1.3 percent, to $34.47 in morning trading Friday.

The world’s largest home improvement store chain has hinted previously that the deal could fall through, or it may have to lower the price. Now, it appears financing is a key sticking point.

Atlanta-based Home Depot has said publicly the deal is not contingent on financing, but there are scenarios under which a party could walk away.

According to a regulatory filing, the agreement may be terminated at any time prior to the completion of the sale by mutual consent, and by either party if the closing does not occur within six months of June 19.

Either party may, however, extend this period for an additional three months if the reason for delay is failure to obtain regulatory approval.

The agreement contains 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 falls through, Home Depot can seek a termination fee from the buyers of more than $309 million under certain circumstances. One such circumstance is if Home Depot terminates the agreement as a result of the buyers’ breach of its obligations to effect the closing, including a failure to obtain financing.

During a speech before the Rotary Club of Atlanta on Monday, Chief Executive Frank Blake said the deal to sell HD Supply is “hopefully” going to close “sometime very soon.” He didn’t address the issue further.

Last week, Home Depot said the expected closing date of the sale of HD Supply had been extended by a week, from Aug. 16 to Thursday.

When the deal was first announced, Home Depot said it would sell the unit for $10.3 billion to a group of private equity firms. But since then, as financial markets have faced turmoil, Home Depot has said it was talking with the buyers about restructuring the agreement, which could result in a lower price tag.

Last week, as Home Depot reported a 15 percent drop in second-quarter profit, Chief Financial Officer Carol Tome said that if the HD Supply sale fell through, Home Depot would have to cut its plans for up to $22.5 billion in share repurchases by nearly half.

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