Home Depot, HD Supply reunite in $8.7B deal
Home Depot Inc. agreed to buy building products distributor HD Supply Holdings Inc., reuniting the homeimprovement retailer with its former subsidiary more than a decade after they split apart.
Home Depot will buy all outstanding shares for about $56 apiece, according to a statement Monday, representing a premium of about 25% over HD Supply’s closing price on Friday. With about 156 million shares outstanding, according to a filing, the offer is valued at roughly $8.7 billion. Including net cash, the deal has an enterprise value of about $8 billion, the companies said.
The deal will give Home Depot a stronger hand in the contractor and professional side of its business, which is booming during the pandemic, just like its do-ityourself consumer market. Home Depot Chairman and Chief Executive Officer Craig Menear said in a prepared statement that the acquisition will give it access to HD Supply’s extensive distribution network throughout the U.S. and Canada.
The acquisition brings back together two companies that used to be under the same roof.
HD Supply is a distributor of maintenance, repair and operations products in the multifamily and hospitality markets. Home Depot initially bought HD Supply in 1997, but sold it 10 years later when it began to focus more on its retail operations.
Shares of HD Supply jumped 24.5% in New York on Monday, and Home Depot rose 1%. HD Supply was up 11% this year through Friday’s close, while Home Depot rose 27% over that span.
One of the largest industrial distributors in North America, HD Supply provides everything from bleach to doors and ceramic tile to about 500,000 customers from 270 branches and 44 distribution centers, according to its annual report.
HD Supply is “a good business with solid margins,” Chuck Grom, an analyst with Gordon Haskett, said in a note. The company has faced underinvestment in recent years, giving the buyer the opportunity to improve the business, he said. The tie-up could add as much as 33 cents a share to Home Depot’s earnings, Grom added.
HD Supply has been slimming down, making it “a highly attractive asset in a compelling segment of the market,” RBC analyst Scot Ciccarelli said in a note.
The deal adds to the momentum for Home Depot, which along with rival Lowe’s Cos. was deemed an essential retailer early in the pandemic and remained open even as many stores shut down for months. The HD Supply transaction, to be funded by cash on hand and debt, is expected to be completed in Home Depot’s fiscal fourth quarter, which ends Jan. 31.
Professional customers currently account for about 45% of Home Depot’s sales, and HD Supply could help it cement its leadership position, said Drew Reading, an analyst with Bloomberg Intelligence.
Monday’s announcement comes about a week after Bloomberg News reported that Lowe’s had recently approached HD Supply and that the companies were in preliminary talks, citing people familiar with the matter at the time. The report also said it was unclear whether there were discussions with other suitors. Lowe’s subsequently said it isn’t in talks and doesn’t plan to pursue a transaction.
Home Depot, based in Atlanta, reports quarterly earnings today.