again increased its offer three days later on Jan. 9 to $46.50
share, a premium of 22 percent over the closing price on Jan. 6. On Jan. 9, the
company’s board of directors approved the sale to Home Depot the following
morning, Hughes and Home Depot announced the deal.
Hughes Supply will become part of
Home Depot Supply division. HD Supply’s sales before it announced it would buy
Hughes Supply were about $3.8 billion, or 5 percent of HD’s 2004 revenues. The
Home Depot expects the supply division will grow to 18 percent to 19 percent of
its revenues by 2010. The acquisition of Hughes Supply is expected to double the
supply division’s revenues in 2006.
For a copy of Hughes’ recent SEC
filings, click href=”http://phx.corporate-ir.net/phoenix.zhtml?c=67988& p=irol-sec”>here.
href=”/stories/homedepot3602.html” target=_blank>What’s Home Depot’s
href=”/pub/1_1/breaking-news/2975-1.html” target=_blank Home Depot Supply Aims for $23-$27B by 2010
Home Depot to Buy Hughes Supply for $3.4B
href=”/stories/hughes3521.html” target=_blank>Hughes and
href=”/issues/35_21/perspective/2880-1.html” target=_blank> Commentary: Rumor mill well fed with Hughes-Home Depot
href=”/pub/1_1/breaking-news/2890-1.html” target=_blank Hughes Supply Profit Up 35% in 3Q BR> The Home Depot to Acquire National
href=”/issues/35_14/perspective/2746-1.html” target=_blank> Commentary: Home Depot points bigger guns at MRO
Commentary: Next Wave of Consolidation
>Home Depot Subsidiary White Cap Acquires Greenwald
A href=”/pub/1_1/breaking-news/2477-1.html” target=_blank> The Home Depot Canada to Acquire Litemor
The Home Depot to Acquire White Cap
Home Depot to Acquire Plumbing
A recent SEC filing by Hughes
Supply gives details on the competitive pressures it was facing before it sold
to Home Depot last month, as well as a timeline and specifics on offers from
The Home Depot’s investment in the
wholesale distribution industry may draw even more attention to distribution
companies looking to sell or consolidate. As a result, valuations of
distribution companies may continue to grow and fuel a new round of
In fact, increased valuations and
consolidation are two of the reasons diversified distributor Hughes Supply
decided to sell to the DIY giant last month for a premium of $3.4 billion, or
around 12X EBITDA, according to a Jan. 27 SEC filing by Hughes.
The SEC filing shows Hughes
developed a strategic plan for the next three to four years that required the
company to use new information technology, upgrade field management, and
restructure the company’s field branch network to eliminate losses or low
profitability in numerous branches.”
But the company’s plan of growth by
strategic acquisition was challenged by recent trends in mergers and
acquisitions. “These risks included increasing competition for strategic
acquisitions, which had already driven pricing beyond historical valuation
multiples, and accelerating industry consolidation, both of which potentially
put the company at a competitive disadvantage,” according to the SEC
Hughes’ choices? Continuing to
pursue the company’s strategic plan, engaging in more extensive acquisition and
disposition activity, and selling the entire company. After receiving interest
from an unnamed financial sponsor, and later, Home Depot, it decided to
Hughes’ recent SEC filings show
that private equity firms likely played a big part in bidding for the company.
The Jan. 27 SEC filing also goes into detail on the reasons why Hughes sold to
Home Depot, and some of the steps it took on the way.
The deal began in July, when Hughes
CEO Tom Morgan first received interest from a “financial sponsor” who was
considering making an offer to buy the company. Soon after, a “senior executive
of Home Depot” wanted to arrange a meeting in Orlando, FL, home of Hughes. The
reason was not disclosed.
The financial sponsor put forth the
first offer for Hughes $39-$41 per share, a premium of 18.5 percent to 24.6
percent over the closing share price on Sept. 6, 2005. After considering the
offer, a special committee for Hughes decided to open up to other bidders “to
ensure the highest value could be obtained by the company.”
During the Orlando meeting on Sept.
22, Home Depot CEO Bob Nardelli expressed interest in buying Hughes. By Oct. 7,
speculation in the press had already begun, and Hughes Supply retained a public
relations advisor to manage communications around the possible deal. Oct. 11,
the unnamed financial sponsor upped its bid to $39-$42 per share. The Home Depot
started its bidding Oct. 14 at $37.50-$40 per share. The Home Depot also wanted
Hughes to enter into exclusive negotiations with Hughes; Hughes
Nov. 1, Lehman Brothers, Hughes’
financial advisors, solicited more bids: It had contact with eight potentially
interested strategic partners, and 12 potential financial sponsors. Two
additional financial sponsors submitted proposals one of $40-$44 a share, and
the other for $41.50 a share in cash. Those two withdrew from the sale less than
a month later.
That left the initial financial
sponsor and The Home Depot. Hughes asked for final bids by Jan. 6,
Home Depot’s bid on Jan. 6 was $44
a share in cash; the financial sponsor ended its bidding with $39-$40 s share.
Home Depot once