Home Depot Inc, the largest home-improvement retailer, may sell its wholesale unit after investors said the company should get rid of the division because of its low profits.
Home Depot is reversing former chief executive officer Robert Nardelli's plan to get 20 percent of revenue from the division, HD Supply, by 2010. Investor activist Ralph Whitworth had called the unit's expansion "strategic adventurism" and said the Atlanta-based company should exit the business.
Home Depot said it's also studying a spinoff or initial stock offering of the division, which sells lumber to construction companies and furniture to hotels, sending the stock to its highest since April. The unit has US$12 billion in annual sales, about 12 percent of Home Depot's total.
"They've been under pressure from shareholders," said Arun Daniel, a senior analyst at ING Investments LLC in New York.
The firm has US$40 billion in assets, including Home Depot shares.
Home Depot said in a statement it hired Lehman Brothers Holdings Inc as an adviser. Colin McGranahan, an analyst with Sanford Bernstein & Co, wrote in a research note on Monday the unit might sell for as much as US$13 billion.
Home Depot paid as much as US$8 billion to acquire the 38 companies in HD Supply, David Schick, an analyst with Stifel Nicolaus & Co, wrote in a research note on Monday.
Home Depot shares gained US$0.44, or 1.1 percent, to US$41.44, at 4:21pm in New York Stock Exchange composite trading. The company's 5.4 percent note maturing in March 2016 fell US$0.012 on the dollar to US$0.9709 cents, according to Trace, the bond price system of the NASD. The yield rose to 5.82 percent.
CEO Frank Blake, who took over after last month's ouster of Nardelli, wants to revive retail sales that have dropped in older stores for two straight quarters amid a slowdown in the US housing market and competition from Lowe's Cos.
"Investors are focusing on the lower margins in Home Depot's supply segment and have been looking at what Blake might do to address it," said Keith Davis, a Washington-based analyst with Farr Miller & Washington LLC. "Everyone wants to see the stores look more like Lowe's, and there's an opportunity to close that gap."
The firm owns 250,000 Home Depot shares among the US$540 million it manages.
Home Depot built the supply unit through about 40 acquisitions over the past decade, most of them since 2004.
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