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The Incredible Shrinking Deals

Home Depot's sale of HD Supply, reduced from $10.3 billion to $8.5 billion, could augur reductions of more M&A terms from 2007's high-priced first half.
Roy Harris, CFO.com | US
August 27, 2007

Home Depot Inc.'s agreement to trim $1.8 billion from the original $10.3-billion price for its HD Supply wholesale-construction unit is leading to speculation that other giant deals are in for significant reductions in terms.

According to Bloomberg News, Home Depot also agreed to finance $1 billion of the take-private purchase agreed to in June by Bain Capital LLC, Carlyle Group, and Clayton Dubilier & Rice. After making the sale at the new price — $8.5 billion — Home Depot will also retain a 13-percent stake in the unit, according to one Bloomberg source.

But more broadly, the revised acquisition terms sent signals that the severe tightening of global credit markets in recent months could prompt downward revisions among others of the more than two-dozen $10-billion-plus transactions announced in the first half, but that have yet to close. According to one estimate, such uncompleted buyout deals total around $400 billion.

The Wall Street Journal reported that a flurry of last-minute discussions between Home Depot CEO Frank Blake and CFO Carol Tome occurred late last week, followed by negotiations with bankers, some of whom were on their summer vacations.

Speculation already had been swirling around Tribune Co., the publisher of the Los Angeles Times, Chicago Tribune, Newsday, and other papers, whose shareholders last week approved an $11.7-billion buyout by an employee stock ownership plan, backed by real estate mogul Sam Zell.

Today, other gargantuan deals from the year's first half were mentioned as potentially being open to review. They included the $32-billion sale of Texas utility TXU Corp. to investors led by Kohlberg Kravis Roberts & Co., Texas Pacific Group, and Goldman Sachs; the $26.7-billion buyout of Alltel by TPG Capital and GS Capital Partners; the $25.7-billion LBO of First Data Corp. by KKR; and Blackstone's $20.2-billion deal for Hilton Hotels Corp., for starters.

In some cases, sellers have been borrowing to help support sales that could go through under revised terms. Germany's DaimlerChrysler AG, for example, took on $1.5 billion in debt to support its announced $7.4-billion sale of Chrysler to private-equity player Cerberus Capital Management, after investors rejected bond and loan packages, according to Bloomberg. Daimler is holding onto a 19.9 percent stake in Chrysler.

Had the sale of HD Supply by Atlanta-based Home Depot fallen through, it could have cost the buyers more than $309 million under some circumstances — the amount that Home Depot might have been due in termination fees. As it is, by completing the deal at the reduced terms, Home Depot is expected to be able to continue planning for a buy-back of $22.5 billion in company shares, according to the Associated Press.




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