Home Depot’s (HD) Bob Nardelli…….He’ll probably survive, but there are reasons he should go.
Shareholder groups are becoming more activist and this trend will continue in 2007. Private Equity and LBO Groups can only acquire so many companies, and there are only so many candidates that can run behemoths. The best way to see change is right at the top in many cases and there is a slew of US public companies that would do far better if they could replace current management. These aren’t in any ranked order, so the first isn’t the worst and the last isn’t the best of the worst. The problem in stating this is that it is very easy to come in and criticize, yet finding replacements for companies this size is not exactly an easy feat. Private Equity as a sector has taken all the talented guys, and they haven’t stopped with the age limits that many public companies live by. There just aren’t too many Lou Gerstner and Jack Welch carbon copies out there.
If Home Depot (HD) doesn’t get rid of Nardelli or if they don’t send him to for a PR Makeover, then they are even more and more out of touch with reality. The problem is that he isn’t just the CEO, buthe is the Chairman too. A hope and a prayer for a private equity bid in what would be the largest and most extended deal in global history has been keeping a floor under the deal, yet almost everyone knows it is close to impossible. Not only is it impossible or highly difficult, but the company is doing everything it can to shun the idea that it would want to get bought. Nardelli’s pay package made him hated by investors, and that is even after the incentivization plan for the top brass was altered. The buyback plan announced last night is another effective floor depending on how the company handles it, AND it makes the company less attractive to a potential buyer because it is $3 Billion less cash on the books that could have been used for dividends. That is even more evident when you consider that it is essentially financed by the recent $5 Billion debt offering. Home Depot has lost ground to a growing Lowe’s (LOW), which is deemed more attractive to shoppers and more nimble as a company. Home Depot has also reached the point that most of the investment community believes it will be very hard to grow from here. A manager that is just in a “hold the fort”mode instead of trying to catch up to your bigger competitor also doesn’t need a pay package as large as he has received. He wasn’t present at the annual meeting and he didn’t give a regular speech nor allow audience questions. The company also wants to avoid monthly updates “so it can focus on longer-term issues for shareholders instead of getting caught up in daily minutia.” He joined in 2000 after not winning the helm position at GE (GE), and the stock price hasn’t seen the light of day since. It is up almost 100% off the lows, but performance was so bad from 2002 to 2003 that the stock is still in negative territory over the last 5-years. The problem is that Nardelli is not even 60, so he knows he has another 5 to 10 years left in him in Corporate America and extremely high pay packages. The company could do a forced buyout package to get him out and Wall Street would probably be ok with it. While the street would love to see him gone, he is rather entrenched there. Even if they post a weak 2007, a lot will be able to blamed on a slower economy and a slow housing market. The company would be better off without him, but he will probably survive.
Jon C. Ogg
December 14, 2006
This is part of “THE 10 CEO’s THAT NEED TO GO” series coming out today and tomorrow. Jon Ogg can be reached at [email protected]; he does not hold securities in the companies he covers.
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