Home Depot has agreed to acquire GMS (GMS 11.77%) for $5.5 billion, heading off a potential bidding war for the target with a sweetened bid.
GMS investors have reason to celebrate, with the stock up 12% on the news.
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A big premium secured
GMS was an under-the-radar construction products distributor until last week, when the company received an unsolicited offer from QXO valuing GMS at $95.20 per share. Soon after the bid was made public there were media reports suggesting that Home Depot was also interested, but few details about that potential offer.
Home Depot apparently made its intentions clear over the weekend. On Monday, the home improvement retail giant announced it had reached a deal to acquire GMS for $110 per share. The deal, which will be done through Home Depot's SRS Distribution subsidiary, offers a premium of 36% over GMS' trading price on June 18.
Home Depot said the combination would provide professional contractors with more fulfillment and service options, creating a network of more than 1,200 locations and a fleet of more than 8,000 delivery trucks.
Is GMS stock a buy?
GMS shares are trading at just below the $110-per-share offer, implying the markets are not expecting QXO to try to swoop in with a higher offer to disrupt that deal. Given the premium price, that assumption is likely to be correct.
The construction distribution consolidation story is far from over, but GMS' chapter is likely complete. There is little reason for investors to buy in following the acquisition announcement.
