By Colin Kellaher
Home Depot Inc. agreed to buy HD Supply Holdings Inc. for about $8.7 billion, reuniting with a unit it sold off in 2007 as the home-improvement giant looks to beef up its ability to distribute industrial products amid the pandemic.
HD Supply is a wholesale distributor of electrical, plumbing, janitorial and other supplies. It has about 44 distribution centers in the U.S. and Canada. It booked sales of nearly $6 billion in its latest fiscal year, though it recently sold a construction unit that accounted for about half of its business.
Home Depot, which has gotten a big lift in sales from rising interest in household projects amid the coronavirus pandemic, said it expects the acquisition will accelerate its sales growth and add to earnings starting next fiscal year.
The Atlanta-based company in August reported its strongest quarterly sales growth in nearly 20 years and is expected to report another strong gain on Tuesday. The pandemic has fueled do-it-yourself projects and strained supply chains.
HD Supply competes with Fastenal Co., W.W. Grainger Inc. and Home Depot's own Pro division, which Chief Executive Craig Menear had sought to build up before the pandemic struck. Analysts at Wells Fargo said the deal will accelerate Home Depot's initiatives to serve professional customers and broaden its ability to provide job-site delivery.
The company said it would pay $56 a share in cash for HD Supply, a 25% premium to Friday's closing price of $44.81. Based on roughly 155.6 million shares outstanding, Home Depot is paying about $8.7 billion.
Home Depot said it would fund the acquisition, which it expects to complete by the end of January, with cash on hand and debt. It said the transaction has a total enterprise value of roughly $8 billion, including HD Supply's net cash.
Home Depot built HD Supply in the 2000s through an acquisition spree led by then Chief Executive Robert Nardelli. After a CEO change, the company sold the unit in 2007 to Bain Capital, Carlyle Group and Clayton Dubilier Rice in a leveraged buyout valued at $8.4 billion.
The trio of private-equity firms took HD Supply public in 2013. HD Supply's board includes representatives from two activist hedge funds: Lauren Taylor Wolfe of Impactive Capital LP and Scott Ostfeld of Jana Partners LLC. Both have been on the board since 2017.
HD Supply last year said it planned to separate its facilities-maintenance and its construction and industrial businesses into two publicly traded companies, but it put those plans on hold in March amid chaotic market conditions brought on by the pandemic.
The company in August opted to sell the construction and industrial business, known as White Cap, to Clayton Dubilier for $2.9 billion in cash and focus on the facilities-maintenance business. That deal, which closed last month, made HD Supply more complimentary to Home Depot's current business and its focus on its Pro offering, analysts at Credit Suisse said.
Shares of HD Supply jumped 24% to $55.67 in afternoon trading Monday. Home Depot shares were little changed.
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