Home Depot said Tuesday that it would sell its wholesale supply business to buyout firms for $8.5 billion -- 17 percent less than previously agreed upon -- as the slumping housing industry and recent credit crunch forced the renegotiation of the deal.
The revised agreement calls for Home Depot , the largest home improvement retailer, to pay $325 million to keep a 12.5 percent stake in the supply business, which will be owned by Bain Capital Partners, Carlyle Group and Clayton, Dubilier & Rice.
Home Depot, which also agreed to guarantee a $1 billion senior secured loan for the unit, said it expected net cash proceeds of $7.9 billion after the stake and other expenses.
The deal will close on Thursday.
The move marks the first price reduction of a major private equity deal since the leveraged buyout boom began roughly two years ago.
Atlanta-based Home Depot, which also agreed to guarantee a $1 billion senior secured loan for the unit, said it expected net cash proceeds of $7.9 billion from the sale, which will close on Thursday.
A steep fall-off in the housing market also contributed to the price cut, as the supply division's worsening business prospects forced the two sides back to the bargaining table.
"The amended agreement ... reflects the diligent efforts to complete the HD Supply transaction on mutually acceptable terms," the private equity buyers said in a statement. "As the buyer, we are particularly gratified to have reached this favorable outcome in the face of challenging conditions."
Atlanta-based Home Depot first said in June it would sell the supply unit for $10.3 billion to refocus on its core retail business, which has slowed with the weakening U.S. housing market and increased competition from smaller retail rival Lowe's.
Home Depot said the sale should not affect its financial results, and reiterated its 2007 earnings outlook. Home Depot expects earnings per share from continuing operations to decline 12 percent to 15 percent, excluding the benefit of any share repurchases.
But the long and ugly renegotiation by the banks and the buyers is likely to have wide repercussions, and according to analysts, could go down as a watershed transaction marking the end of the private equity mega-deal frenzy.
Merrill Lynch, JP Morgan and Lehman Brothers provided the private equity firms with third-party financing, while Goldman Sachs advised Home Depot financially.
Home Depot shares were up 13 cents, or less than 1 percent, at $35.18 on the New York Stock Exchange.