Home Depot's stock rose to its highest level since last April on news that the company is considering a sale, spin-off or IPO of HD Supply, its wholesale supply unit. HD Supply has annual revenues of about $12 billion, and analysts estimate it could be sold for $8-13 billion. The move by new CEO Frank Blake is apparently in response to criticism from activist investor Ralph Whitworth, whose company recently won a seat on Home Depot's board. HD Supply, which provides materials to U.S. and Canadian contractors, had been championed by ousted CEO Bob Nardelli, who forecast that it would supply 20% of the company's revenue by 2010 (up from its current 12%). Whitworth categorized Nardelli's expansion of HD Supply "strategic adventurism" and all but instructed the company to get rid of it. A sale of HD Supply would allow Home Depot to concentrate on reviving its ailing retail stores, which have been losing ground to rival Lowe's. In addition to sluggish profits, Home Depot is also faced with a probe into a possible stock option scandal.
Sources: Bloomberg, Reuters, MarketWatch, New York Times, Wall Street Journal
Commentary: Home Depot Board Seeks to Pacify Shareholder Activist • Home Depot: New Beginnings or Tip of the Iceberg? • Fisher's Buyout Candidates
Stocks/ETFs to watch: Home Depot, Inc. (HD). Competitors: Lowe's Companies Inc. (LOW). ETFs: Retail HOLDRs (RTH), SPDR S&P Homebuilders (XHB), Vanguard Consumer Discretionary ETF (VCR), Vanguard Dividend Appreciation ETF (VIG)
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