Home Depot Agrees to Sell Supply Unit for $10 Billion

Three Private-Equity Firms to Take Equal Stakes
By ANN ZIMMERMAN and DENNIS BERMAN

A trio of investors agreed to buy Home Depot Inc.'s wholesale construction supply business for a tad more than $10 billion, according to people close to the deal.

The investors are Bain Capital LLC, Carlyle Group L.P. and Clayton, Dubilier & Rice Inc., which will each have a one-third stake in the business. A Home Depot spokesman declined to comment on the deal.

Home Depot, the country's largest home-improvement retailer by sales, wants to sell the division in an effort to put more money and effort into rejuvenating customer service, staff morale and sales at its chain of more than 2,100 retail stores.

Analysts also expect it would allow Home Depot to return the sale proceeds to shareholders in the form of a major share repurchase or dividends. Since the first of the year, Home Depot's stock has slid almost 8% as it struggled to jumpstart sales amid a sharp slowdown in the housing sector.

The price is about what analysts had expected in late spring as the housing market remained depressed. But earlier in the year, when CEO Frank Blake first announced the company was considering strategic alternatives for the business, estimates were as high as $13 billion.

Under controversial former CEO Bob Nardelli, Home Depot built the wholesale construction supply business through nearly 40 acquisitions valued at nearly $7 billion over the last few years. HD Supply sells infrastructure and maintenance products to builders, municipal systems and other businesses, generating about 13% of Home Depot's sales in fiscal 2006 but delivering 80% of sales growth.

Initially, Mr. Nardelli saw the supply business as a way to counter the dips in the cyclical housing market, but in fact the supply division sold to home builders as well. Shareholders began to see it as a distraction, siphoning off funds needed to improve staffing, renovations and computer systems at its stores. In recent years, Home Depot's sales at stores open at least a year trailed those at its smaller, but faster-growing competitor Lowe's Corp., although that gap has narrowed in recent months.

--Mary Ellen Lloyd contributed to this article.