Home Depot (HD) Buying HD Supply (HDS) In $8 Billion Deal

By Amit Chowdhry ● November 16, 2020
  • Home Depot Inc (NYSE: HD) announced it will be retaking control of HD Supply Holdings Inc (NASDAQ: HDS) as part of an $8 billion deal. These are the details.

Home Depot Inc (NYSE: HD) announced it will be retaking control of HD Supply Holdings Inc (NASDAQ: HDS) as part of an $8 billion deal. HD Supply Holdings was spun out of Home Depot over a decade ago. The deal is expected to close in Q4 of Home Depot’s fiscal year.

As part of the deal, Home Depot is going to pay $56 per share for HD Supply. HD Supply is known for being a national distributor of maintenance, repair and operations (MRO) products in the multifamily and hospitality end markets. Home Depot is going to use cash on hand and debt for financing the purchase of HD Supply. HD Supply has about 300,000 customers and around 44 distribution centers across 25 U.S. states and 2 Canadian provinces.

As part of the terms of the merger agreement, a subsidiary of The Home Depot will commence a cash tender offer to purchase all outstanding shares of HD Supply common stock for $56 per share for a total enterprise value (including net cash) of approximately $8 billion. And the closing of the tender offer is subject to customary closing conditions, including regulatory approvals and the tender of a majority of the shares of HD Supply common stock then outstanding (on a fully diluted basis) and is expected to be completed during The Home Depot’s fiscal fourth quarter — which ends on January 31, 2021. The deal is expected to be funded through cash on hand and debt.

J.P. Morgan Securities LLC served as exclusive financial advisor and Wachtell, Lipton, Rosen & Katz served as legal counsel to The Home Depot in connection with the transaction.

KEY QUOTES:

“The MRO customer is highly valued by The Home Depot, and this acquisition will position the company to accelerate sales growth by better serving both existing and new customers in a highly fragmented $55 billion marketplace. HD Supply complements our existing MRO business with a robust product offering and value-added service capabilities, an experienced salesforce that enhances the strong team we have in place, as well as an extensive, MRO-specific distribution network throughout the U.S. and Canada.”

— Craig Menear, chairman and CEO of The Home Depot

“We’re thrilled that our associates are joining the Home Depot team and that our customers will be able to benefit from a broader product assortment, expanded delivery options and enhanced services nationally. We are confident that this will position both The Home Depot and HD Supply for continued growth and success in the MRO distribution space.”

— Joe DeAngelo, chairman and CEO, HD Supply

“We plan to access the debt capital markets to raise incremental indebtedness in support of this acquisition. We also expect the transaction to be accretive to earnings in fiscal 2021, with potential for significant shareholder value creation over the longer term.”

— Richard McPhail, executive vice president and CFO of Home Depot

Disclosure: I have a small HD position in my stock portfolio