24/7 Wall St.

For Home Depot (HD), it is the worst of all worlds. After getting private equity interests to agree to buy the company’s wholesales unit, Home Depot Supply, for $10.3 billion, the deal ran into hurdles as banks refused to loan money for the transaction. Credit markets have become to tight, and businesses that sell products into the housing market are in too much trouble.

According to The Wall Street Journal, HD will drop the price of the unit to $8.5 billion, almost 20% less than the original deal. And, HD will guarantee $1 billion of the debt taken on by the purchasers.

As 24/7 Wall St wrote earlier, the deal is not worth doing for HD. It is better off to keep the wholesale operation and turn it around itself. The lenders on the deal must have seen it the same way. The Journal writes that "banks were so desperate to avoid taking a hit on the debt that they offered to pay the private-equity firms’ $300 million "walkaway" fee to Home Depot if the deal was scuttled>"

Everyone would have been better off if that had happened.

Douglas A. McIntyre