The world's largest home-improvement retailer, Home Depot (NYSE:HD), is about to get a little bit bigger. On Friday, the company announced that it will acquire Mexico's second-largest home-improvement chain, Home Mart (second to whom? Home Depot itself).
Both parties to the sale were coy about the deal's price tag, disclosing no financial terms to the public. That should come out in Home Depot's 10-Q sometime after the sale closes, however -- if the deal closes, that is.
The Home Mart sale will be subject to Mexican antitrust regulation, and the facts of the transaction are such that they would raise concerns if it took place in the U.S.
The larger square footage of Home Depot stores already makes it the country's largest home-improvement retailer, despite having fewer stores than Home Mart. And Home Depot has been the undisputed No. 1 retailer in the category ever since 2001, when it entered the market by buying out the then-current largest Mexican chain, Total Home. Now the Depot will be buying its closest competitor. Not exactly conducive to price competition in the Mexican market (although Home Depot investors would probably shed few tears over that -- monopoly pricing can do wonders for a company's profitability).
So Mexican antitrust regulators will certainly have reason for concern. Home Depot will have enormous pricing power, being essentially the only one-stop shopping provider in the country. On the other hand, the company will probably be on firm ground, arguing to the regulators that consolidation will be a good thing for consumers. As the country's largest purchaser of home construction and improvement products, Home Depot will be able to wring price concessions out of suppliers such as Stocks 2003 pick Cemex (NYSE:CX), which makes the biggest component used in building Mexican houses -- cement.
If the sale goes through, Home Depot will more than double its Mexican store count to 39 stores in one fell swoop. The company says that more important than total store count, however, will be its expansion in the hot Mexico City market. There, store count will more than quadruple from three to 13 stores and constitute fully one-third of the company's Mexican locations.
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Fool contributor Rich Smith does not own shares of any of the companies mentioned in this article.
