Home Depot: This Buyback Was Destined To Fail

It looks like the Home Depot Supply unit sale that was scheduled to close today won't get done.

Home Depot (HD) said earlier this month that it was in talks with buyers Bain Capital, the Carlyle Group and Clayton Dubilier & Rice about a restructuring of the $10.3 billion all-cash deal that was to partially fund a $22.5 billion stock repurchase plan.

According to The Financial Times, the new terms would include a lower price designed to entice Merrill Lynch (MER), Lehman Brothers (LEH) and JPMorgan (JPM) to finance the deal amid the current issues in the credit markets. The report then went on to say that the banks appear unwilling to fund the deal, even under the new terms being worked out by Home Depot and the buyers.

Surprised? I hope not. Look at it this way, what has Home Depot done right this century? They are constantly shooting themselves in the foot and the real surprise should be that this deal did not fall apart sooner.

If they had just kept supply and announced a modest $5 billion buyback when they announced this current destined to fail operation, they would be on their way to completing it and shares would most likely be in the $40 range they were when this plan was announced. Depending on market conditions then, they could have added more and done this whole thing responsibly. By shooting for the moon, The Depot just adds this to the list of mess ups.

HD 1-yr chart:

Disclosure: Author has no position in HD.

Comments

[User 42641]

<i>"This Buyback Was Destined to Faill"

"It looks like the Home Depot Supply unit sale that was scheduled to close today won't get done."</i>


The sale of HD Supply is set to close today. Bizarrely pessimistic piece on Home Depot, in line with the tone of the author's prior contributions on the company.

Alex Dumortier, CFA

Full Disclosure: I have no beneficial interest in Home Depot shares, but I do cover the stock on behalf of The Motley Fool <i>Inside Value</i>, as it is one of our stock recommendations.