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Home Depot may sell division

HD Supply could be shed as the new CEO wants to focus on the company's retail side.

February 13, 2007|From the Associated Press

ATLANTA — Home Depot Inc., the world's largest home improvement store chain, distanced itself further from the strategies advanced by former Chief Executive Bob Nardelli as it said Monday that it would consider shedding its division serving contractors, home builders and other business customers.

Some analysts said the decision to possibly sell Home Depot Supply could benefit the company by allowing it to focus on generating value for shareholders, but others suggested that it could put the onus back on the company's retail side, which faces tough competition from Lowe's Cos.

The announcement followed a decision this month by the Atlanta-based company to give a seat on its board to an investment group that wants Home Depot to consider, among other things, a leveraged buyout of the entire company as a way to generate shareholder value.

The group, Relational Investors, had threatened a proxy fight over the home-improvement company's strategic direction, part of an undercurrent that led to Nardelli's resignation in early January after six years at the helm of the company.

Frank Blake, who replaced Nardelli as CEO, said Monday's announcement regarding Home Depot Supply was part of a strategic review the company conducted in November.

Nardelli had said repeatedly that he believed the company's strategy under his watch did not need changing.

Blake said the company wanted to concentrate more on its retail business.

The company said it would "evaluate strategic alternatives" that could also include an initial public stock offering of the supply business. Home Depot did not say how much it could fetch for HD Supply, but some analysts valued it at $5 billion to $7.5 billion.

"This tells us new CEO Frank Blake is focused on value and taking a fresh look at every aspect of the business," David Strasser, an analyst with Banc of America Securities, said in a research note.

Just last year, Home Depot announced it had completed its $3.2-billion purchase of Orlando, Fla.-based Hughes Supply Inc., a distributor of construction, repair and maintenance products.

The deal, Home Depot's largest acquisition ever, doubled the size of the HD Supply division, which serves business customers including municipalities and maintenance professionals.

The division was seen as a big opportunity for growth by Nardelli.

HD Supply has annual revenue of about $12 billion, has nearly 1,000 locations nationwide and in Canada and employs more than 26,000 associates, the company said.

Home Depot has retained investment firm Lehman Bros. as its financial advisor to assist in the process of possibly shedding Home Depot Supply.

Home Depot shares rose 44 cents to $41.44.

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