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DIY Buyout Defense

Thursday, 14 Dec 2006 | 4:45 PM ET

There is a big, giant bullseye painted in bright red over the entire retail sector. Private equity firms are sniffing around targets like the Gap (which, according to Women's Wear Daily, may have a bidder in Eddie Lampert), Barnes and Noble , and Home Depot .

But Home Depot stands out. It is putting up a fight. Yesterday, Home Depot sold $5b in a three-part global debt sale. That prompted Fitch to cut HD's debt rating to A-plus. S&P dropped its rating two notches. Call it a DIY defense against a leveraged buyout.

By taking on more debt, Home Depot makes itself a less attractive takeover candidate. After all, these private equity firms want to buy a company that can take on more debt. Once a company is viewed as fully leveraged, its drops off the radar -- or at least off everyone's LBO screen.

UBS retail analyst Gary Balter, in a note to clients, said he "hopes other retailers of the world generating too much cash with slowing square footage growth" will learn from this. Specifically, he mentioned Bed, Bath & Beyond and Best Buy .

With all the buzz over private equity eyeing retail, we'll see if these companies in the crosshairs will start buying some protection against an LBO.

Questions? Comments? PowerandMoney@cnbc.com

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