Home Depot to Accept $1.8B Less for HD Supply

Atlanta, GA, August 27, 2007--Home Depot has tentatively agreed to sell its wholesale distribution business to a group of private equity firms for $1.8 billion less than originally planned, and it will retain a small stake in the unit, a person with direct knowledge of the situation said Sunday.

The deal, which also includes Home Depot guaranteeing $1 billion of the debt the buyers will take on to complete the transaction, was hammered out during several days of talks that continued into the weekend, the person said.

The person, who asked not to be identified because he was not authorized to speak publicly, said the revised agreement calls for Home Depot to receive $8.5 billion in cash instead of the original $10.3 billion agreed to in June.

Home Depot will retain a 12.5% stake in the HD Supply unit, the person said.

Even though Home Depot is accepting less than anticipated for the unit, the deal is expected to allow it to proceed with its plan to buy back up to $22.5 billion in company shares.

Home Depot had hinted previously that the deal could fall through or the price would have to be reduced.

The company said publicly the deal was not contingent on financing, but there were scenarios under which a party could walk away. According to a regulatory filing, the agreement could have been terminated at any time prior to the completion of the sale by mutual consent.

The original agreement contained customary termination rights based on breaches of representations or covenants subject to the materiality standards of the agreement and rights of the parties to cure such breaches.

If the deal had fallen through, Home Depot could have sought a termination fee from the buyers of more than $309 million under certain circumstances. One such circumstance was if Home Depot terminated the agreement as a result of the buyers' breach of its obligations to effect the closing, including a failure to obtain financing.

When the deal was first announced, Home Depot said it would sell the unit for $10.3 billion to a group of private equity firms. But since then, as financial markets have faced turmoil, Home Depot had said it was talking with the buyers about restructuring the agreement, which it said could result in a lower price tag. The talks were supposed to wrap up Thursday, but continued for several more days.