Home Depot’s stock slid more than 5 percent yesterday after the giant retailer said it may be forced to reduce the $10.3 billion price that a trio of private-equity firms agreed to pay for its professional supply business.
The news came three days after a cadre of Home Depot executives decided to dump over $800,000 worth of stock.
Private-equity giants Bain Capital, the Carlyle Group and Clayton Dubilier & Rice have been in discussions with Home Depot about lowering the price of the company’s HD Supply business amid a greater-than-expected downturn in the housing market.
It’s unclear why the buyers, which won a heated auction for the unit earlier this year, are trying to renegotiate the price.
Sources said a downturn in the stock market and further pain in the residential real estate market has taken its toll on HD Supply, which caters to professional homebuilders and contractors, providing them products such as countertops and electrical wiring as well as installation services.
“This clearly is not a near-term positive to HD nor to a market nervous over credit,” said Credit Suisse analyst Gary Balter.
Some analysts and investors speculated that the banks providing the debt for the deal – including Merrill Lynch, JPMorgan and Lehman Brothers – convinced the private-equity firms to return to the bargaining table.
The banks are on the hook for at least $8 billion in new debt that will be difficult to syndicate to other investors in this market, analysts said.
Home Depot stock fell as much as 7.1 percent, but regained some ground later. It closed down 5.3 percent at $35.79.
The company also cut the price it’s willing to pay for its stock in a tender offer to $37 to $42 a share, from $39 to $44 previously. The tender offer is part of Home Depot’s plan to buy back 250 million shares.
If the sale of HD Supply falls through, the buyout firms must pay Home Depot a break-up fee of $309.8 million, according to the merger agreement.
On Monday, eight Home Depot executives including CEO Frank Blake sold over $800,000 worth of the company’s stock at $36.89 a share, according to regulatory filings.
A spokeswoman for Home Depot said the move was part of a planned stock sale that was meant to cover the required tax withholding on the portion of a restricted stock award that vested earlier this week.