UPDATE 1-HD Supply to sell Waterworks unit for $2.5 bln

(Adds deal details, background and share movement)

June 6 (Reuters) - Industrial retailer HD Supply Holdings said on Tuesday it would sell its waterworks unit to private equity firm Clayton, Dubilier & Rice for $2.5 billion in cash to reduce debt and streamline its operations.

Shares of HD Supply, one of the largest industrial distributors in North America, fell 5.5 percent to $39.00 in premarket trading.

Based in Atlanta, Georgia, HD Supply operates in three divisions: waterworks, facilities maintenance, which sells to multifamily housing, and construction and industrial, which sells to building contractors.

The divestment would allow HD Supply to trim down some of its long-term debt of $3.86 billion as of January.

"This significant strategic transaction will further simplify and focus HD Supply on our highest value creation opportunities, accelerate debt reduction, create additional cash...," Chief Executive Joe DeAngelo said in a statement.

The company has been looking to position its construction and facilities maintenance businesses to benefit from U.S. President Donald Trump's emphasis on infrastructure spending and tax reform.

HD Supply and Clayton, Dubilier expect to close the transaction in the third quarter, subject to customary regulatory approvals.

Goldman Sachs & Co LLC was HD Supply's financial adviser and King & Spalding its legal counsel on the transaction. (Reporting by Rachit Vats in Bengaluru; Editing by Maju Samuel)