Home Depot shares shed 5% Tuesday to close at $36.36, their steepest drop in almost a month, after the company announced it will buy back $10.7 billion of stock at $37 a share, 3.4% below last Friday's close. About 289.6 million shares, or approximately 14.6% of the total outstanding, were tendered before the company's offer expired on August 31. When the buyback was first announced, the company said it would pay $39-44 per share, but cut that estimate to $37-42 in early August after the planned sale of its HD Supply unit began to run aground. (The sale eventually went through, but the price of the unit was reduced to $8.5 billion from $10.3 billion.) "It's funny, kind of a Catch-22," said Walter Todd, a principal at Greenwood Capital Associates. "Current shareholders get screwed a little bit, but presumably the company gets a great deal on its stock, which if you believe what management says, should create value in the future." On August 16, Home Depot shares hit a 52-week low of $31.85, and the shares have been trading below the tender offer price range for much of the past three weeks. Home Depot is financing the buyback through the proceeds of the HD Supply sale and a $10 billion credit line.
Sources: Forbes, Dow Jones, Bloomberg
Commentary: Home Depot: This Buyback Was Destined To Fail • Home Depot/Lowe's Pair Trade - Hedged Opportunity For Housing Despair • Home Depot's Financial Glaucoma
Stocks/ETFs to watch: HD. Competitors: LOW. ETFs: RTH, XHB, VCR
Earnings call transcript: The Home Depot Q2 2007
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