Looks like Home Depot (HD) CEO Frank Blake caved to activist shareholders and now officially deserves the moniker, "Bend over Blake."
In February I contemplated buying HD shares but wanted to see what was going to happen to the only division in the company actually growing, the Supply unit. Later, when it looked like the unit might remain a member of Home Depot, I backed off Blake and decided to take a "wait and see" approach. It now looks like my initial assessment was correct.
CNBC today announced "Home Depot Inc. agreed to sell its Home Depot Supply
business to a consortium of private equity companies for more than $10 billion,
the New York Times reported in its online edition on Tuesday. Citing people
briefed on the talks, the paper said Home Depot will announce the deal later
today with Bain Capital, the Carlyle Group and Clayton Dubilier & Rice."
At least the folks at the PE companies see the value in the unit. This move is all about Blake trying to appease Relational Investors and jump the stock price today at the expense of long term gains. This smells eerily similar to what happened at Wendy's last year when Pershing Square's Bill Ackman demanded a spinoff of the Tim Horton's (THI) coffee chain. He got what he wanted, cashed in, bolted and now Wendy's (WEN) shareholders are left wondering what became of their company. How much better would Wendy's sales and profits be today if they sold Tim Horton's coffee at their drive thru's given the success Mcdonald's (MCD) has had with premium coffee?
Getting rid of the Supply unit will not fix the problems at Home Depot. The problems there are systemic, not financial. The thought that they cannot execute both a retail and a Supply unit only means they have incompetent management there, not that it cannot be done. Is it really that far of a stretch to picture them selling pvc piping to a homeowner vs a business owner? Had they entered the food business, it would make sense to sell it. This is a value destroyer long term.....