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Why HD Supply Shot Up 25% Today

By Howard Smith – Nov 16, 2020 at 10:35AM

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Rumors from last week that HD Supply was being acquired turned out to be true, just with the wrong buyer.

What happened

Shares of industrial-distributor HD Supply Holdings (HDS) are up 25% today as of 10:25 a.m. EST, after an announcement that it's being acquired in a deal worth $8 billion.

Last week, home-improvement retailer Lowe's (LOW -0.05%) put out a statement to deny a report that it was in talks to buy HD Supply. Today, rival retailer Home Depot (HD -0.67%) put out its own statement to confirm that it's buying the company that it previously sold to private equity firms in 2007. 

So what 

Home Depot will buy the supplier of maintenance, repair, and operations (MRO) products for $56 per share. That's 25% higher than HD Supply's closing price of $44.81 on Friday. 

Blocks with the letters M&A stacked atop each other. M&A stands for mergers and acquisitions.

Image source: Getty Images.

The deal, which has been unanimously approved by the board of directors for each company, represents a total enterprise value (including net cash) of approximately $8 billion. Home Depot is reuniting with the business it previously sold for $8.5 billion in 2007.

Now what

Home Depot will fund the purchase with cash and debt and said it expects the transaction to be accretive to earnings in fiscal 2021. It also has the "potential for significant shareholder value creation over the longer term," Home Depot executive vice president and CFO Richard McPhail said in a statement. 

The company supplies products for property managers and owners of multifamily, hospitality, commercial, healthcare, and government facilities in both the U.S. and Canada. Home Depot said HD Supply will complement its current MRO business while accelerating growth with new customers in what it said is a $55 billion market. 

Howard Smith owns shares of Home Depot. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Lowe's. The Motley Fool has a disclosure policy.

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