Home Depot sees possible "material changes" in sale of HD Supply but releases no further details

By Lisa Kerner

Charlotte, N.C., Aug. 14 - There were no new details to add to the Home Depot, Inc.'s proposed sale of its HD Supply business, according to chairman and chief executive officer Frank Blake during the company's earnings call on Tuesday.

Blake said he was "not in the position to answer questions" on the matter. On Aug. 9, the company announced it was in discussions with affiliates of Bain Capital Partners, the Carlyle Group and Clayton, Dubilier & Rice to restructure the agreement for the sale of HD Supply. As a result, there could be "material changes" to the terms and financing of the transaction, including a reduction in the $10.325 billion purchase price.

Previously, Home Depot said net proceeds from the sale of HD Supply, existing cash on hand and the net proceeds from an anticipated $12 billion issuance of senior unsecured notes would be used to fund Home Depot's share repurchase program.

When asked about HD Supply, company representatives said the business captured some share gain while sales fell 7% and operating margins contracted.

Blake said the current housing market continues to be a challenge for Home Depot. Issues in the subprime market are also of particular concern.

"This is a difficult time and our performance reflects that," Blake remarked. "We have a long way to go to get where we need to be."

Second-quarter sales fell 1.8% to $22.2 billion from the prior-year period. Home Depot posted consolidated net earnings for the quarter of $1.6 billion, or $0.81 per share, compared with $1.9 billion, or $0.90 per share, in the same period in fiscal 2006.

Looking ahead, Home Depot reiterated that it expects earnings per share from continuing operations to decline 12% to 15% for fiscal 2007. Earnings per share are expected to fall 15% to 18% during the same period.

Home Depot also amended the terms of its current modified Dutch auction tender offer, blaming market conditions for a reduction in the per-share price range to $37 to $42, from $39 to $44. The offer, which is not conditioned on the sale of HD Supply, is slated to end at 5 p.m. ET on Aug. 31 and is part of the company's overall $22.5 billion recapitalization plan that includes the sale of HD Supply.

Regarding its debt placement, Home Depot wouldn't comment too much on the call, but said its approach is prudent and practical. Representatives would not say when, if and how the company would go to the markets.

Home Depot is an Atlanta-based home improvement retailer. HD Supply distributes wholesale construction, industrial and maintenance supplies.

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