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January 22, 2007

The Wall Street Journal (subscription required) reported this weekend that Home Depot board members are expected to visit this week with investor Ralph Whitworth, head of Relational Investors, which owns 1.3% of HD stock. Whitworth has been critical of HD's strategy recently and says that big changes are necessary to boost the stock price post-Nardelli. Bob Nardelli recently resigned his post as CEO.

Whitworth has been critical of HD's supply business, telling CNBC's Closing Bell in January: "What we believe is that management should be focused like laser beams on the core business, improving the customer experience, improving their efficiencies in that business and not engaging in this strategic adventure, going off into the supply business."

Whitworth also told the Wall Street Journal in December that HD "should sell (the supply businesses) and get what they can for them, because they make no sense."

The Journal reported that the meeting with Whitworth signals that the board is "anxious to hear Mr. Whitworth's ideas for improving the company."

Whitworth is considered an "activist shareholder," and has worked his way onto boards of other companies his fund has invested in. He plans to seek a spot on the HD board whether or not HD follows through on his demands, according to the Journal.

Home Depot, for its part, has said it would stick with the HD Supply strategy. Its new CEO Frank Blake was a driver behind the supply business strategy in the past several years, and worked for Nardelli for several years at GE before Nardelli brought him to the home improvement retailer. Since 2002, Blake's responsibilities included strategic business development, growth initiatives, real estate, store construction, credit services and the Home Services business.

The Wall Street Journal calls Blake the "chief architect of the wholesale-building-supply strategy."

Related Links:
MDM Commentary: HD Supply Strategy Bigger Than One Guy
Home Depot CEO Nardelli Resigns
HD to Reject Proposal to Evaluate "Strategic Alternatives"
Relational's letter to HD

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