Home Depot’s sale of its construction supply business, HD Supply, to private equity investors appears to have fallen victim to the current scarcity of credit for big deals. Not that the deal is dead, just reduced. According to Bloomberg and other reports, Home Depot has agreed to an 18% price cut to get the sale done, to 8.5 billion, down from the original 10.3 billion announced in June. Why? The bankers who were supposed to lend the cash for the buyout insisted on better terms to cut their risk. Bain Capital, Carlyle Group and Clayton Dubilier & Rice are the private equity investors in the deal, but, as with all such deals, they are borrowing most of the purchase price in hopes of future profits from the leverage. Bain is also one of the participants in the pending buyout of Clear Channel Communications.
RBR observation: Worries about the credit markets have put some downward pressure on the stock prices of broadcasting companies with buyout deals pending, notably Clear Channel, Cumulus Media and Tribune Company. As far as we can tell, all three have their financing in place with little chance of the lenders being able to drop out, which is good news for arbitrageurs looking to make a quick buck. But the sub-prime mortgage fiasco that’s echoing throughout the credit markets has definitely put a damper on doing any new deals in the billion-plus category.