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Nardelli Quits Home Depot After Year of Intense Criticism

cnbc.com
Wednesday, 3 Jan 2007 | 4:44 PM ET

Home Depot Chairman and Chief Executive Robert Nardelli abruptly quit after a year of heavy criticism for everything from his pay package to the underperforming retailer's corporate governance.

Nardelli, 58, will walk away with a severance package of about $210 million. He and the company said in a release that his leaving was a "mutual decision."

Succeeding Nardelli is Frank Blake, the 57-year-old vice chairman who joined Home Depot in 2002. The moves of Nardelli and Blake, who are both former executives of General Electric, took effect on Tuesday, according to the company.

Home Depot told CNBC that Frank Blake was elected as its permanent chairman and CEO. "This is not an interim position," the company said.

Nardelli came under fire early last year for a pay package that some investors said was not in line with Home Depot's performance since he arrived in late 2000.

Wall Street largely cheered the leadership change. Many analysts said that although Nardelli helped Home Depot with systems upgrades, recent unfavorable publicity dented confidence in the world's largest home improvement retailer as it faces a slowing housing market and more competition.

"I just think it's a sign that just from a morale standpoint and a confidence standpoint ... from investors, from employees, from the market, they needed to make a change," Jon Fisher, a portfolio manager at Fifth Third Asset Management, told Reuters. Fifth Third Asset Management owns Home Depot shares.

The resignation also may bring near-term help to the company's shares, some analysts said.

"This is a positive for Home Depot shares in the short term," added John Person, president of NationalFutures.com, in an interview with Reuters. "The resignation of Nardelli gives a chance for new leadership, better incentives for the growth for the company and better profit margins. (Nardelli's departure) is a surprise, but probably a welcome surprise because Home Depot has not been able to increase its share price for the last two years."

Nardelli Steps Down
Bob Nardelli steps down as Home Depot's Chairman & CEO after six years on the job. CNBC's Scott Cohn has the details.

Last month, Nardelli tried to quash speculation that the company was a takeover target, but his resignation is sure to spark another round of chatter about the company's future.

Home Depot told CNBC that the board recently conducted a strategic review, and has confidence in the company's current business model, long-term strategy and future growth potential.

"No Deal Too Large"

"There's so much money around looking for employment that no deal is too large," Michael Metz, chief investment stragetist at Oppenheimer & Co. told Reuters.

Last month, Relational Investors said it would call for a committee to study Home Depot's management performance and strategic options, including a buyout. Relational Investors previously led a proxy battle at Soverign Bancorp and eventually took one seat on the company's board of directors.

Ralph Whitworth, founder and principal at Relational Investors, said Home Depot needed to improve its core retail stores to compete successfully against its smaller rival, Lowe's.

Whitworth -- whose challenge came amid growing concerns about Home Depot's slumping stock, executive pay and corporate governance -- argued that Home Depot goofed when it expanded supply sales to building contractors, a cyclical sector with low margins.

Others called for separating the roles of chairman and chief executive officer, a suggestion Nardellli rejected.

Home Depot's earnings fell about 3% for the third quarter ended Oct. 29 and sales at stores open at least one year fell 5.1%.

In December, Home Depot said errors in backdating some stock option grants resulted in unrecorded expenses totaling about $200 million. An independent review ordered by the company found no wrongdoing by current management or the board. However, the Securities and Exchange Commission is reviewing Home Depot's stock options and the U.S. Attorney for the Southern District of New York has requested information.

Company Statement

In a statement, Home Depot said Nardelli provided the company with "strong leadership" during his tenure as CEO.

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"The Home Depot has delivered strong and consistent growth and gained market share under Bob's leadership, and we believe that the company is well positioned to continue to do so," the company said.

Blake, Home Depot's new top executive, served as deputy Energy Secretary and has been on the company's board since 2002. Prior to that, he served in a variety of executive roles at General Electric, the parent of NBC Universal and CNBC.

In an interview on CNBC's "Squawk Box," Stifel Nicolaus analyst David Schick said he views Nardelli's resignation as an attempt to move the company past the recent headlines.

"So this, I think, is an attempt to start to clean things up and get them organized so that employees can feel good about what they're working on," Schick said.

Severance Package

Nardelli's severance package includes $20 million in cash, the acceleration of unvested deferred stock awards now worth about $77 million, the payment of previously earned and vested deferred shares worth nearly $44 million, the payment of bonuses worth about $9 million, and the payment of retirement benefits currently valued at about $32 million.

"Unfortunately, it's not out of line with what other CEOs have gotten and that's the way all these packages are being judged," Peter Jankovskis, director of research for Oakbrook Investments, told CNBC. "I think, overall, the level of compensation for departing CEOs is obscene."

Oakbrook owns Home Depot's stock and Jankovskis said he nevertheless remained confident about the company's future.

"The timing of (the depature) was sudden, but I believe the team that's in place is largely remaining in place so we continue to have faith in their ability to execute," he said.

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