Home Depot is apparently a target of private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group, according to recent news reports from CNBC and the New York Post. The firms would pay a record $100 billion in a leveraged buyout of Home Depot, which has been rapidly growing its new wholesale division, HD Supply.
The Post reported no formal offer for Home Depot has been made, but firms have been talking with investment banks about structuring the debt needed to finance what would be the largest leveraged buyout in history. CNBC reported investment bankers have contacted Home Depot’s board members to gauge their interest.
Atlanta Journal Constitution reported that CEO Robert Nardelli said that it’s not unusual for companies and private equity firms to look into acquisitions. He said: “On any given day we are running numbers on lots of other companies. Somebody is probably running the numbers on us on any given day.” The company has refused to comment on the takeover reports.
Analysts told news sources that a buyout would have to be made at a premium, and that raising the capital to buyout Home Depot would be difficult.
Home Depot’s stock price has been on a steady decline over the past two years. The retailer has been using its wholesale division, HD Supply, which HD projects will have $12 billion in sales in 2006, as a growth platform. The Home Depot has seen retail sales decline thanks to strong competition from Lowe’s.
HD Supply recently reported sales increased 159 percent in the third quarter to $3.5 billion, accounting for about 15 percent of The Home Depot’s overall sales. That brings the division to $8.9 billion for the year. Organic growth in the third quarter, thanks to a slowdown in residential construction, was a more modest 7 percent.
The rumors also fueled additional speculation over whether the wholesale division, HD Supply, might be spun off as part of the deal. But considering the growth strategy and investments made into the sector, most observers polled by MDM think it an unlikely scenario.