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Are HD Supply Shareholders Getting Enough to Return to the Home Depot Fold?

HD Supply Holdings Inc. (NASDAQ: HDS) shares jumped on Monday after the company announced that it would be acquired by Home Depot Inc. (NYSE: HD). The companies expect the deal to close before the end of January 2021.

Both boards of directors of both unanimously approved the terms of the agreement, and the board of directors of HD Supply has resolved to recommend that shareholders accept the offer, once it is commenced.

Under the terms of the agreement, Home Depot will commence a tender offer to acquire all outstanding shares of HD Supply common stock for $56 per share in cash. The enterprise value of the transaction is roughly $8 billion.

The transaction price offers premiums of 33.8% and 54.7%, compared with the 50-day and 200-day moving averages of $41.86 and $36.19, respectively.

The acquisition is structured as an all-cash tender offer for all outstanding issued common stock of HD Supply followed by a merger in which remaining shares of HD Supply would be converted into the same U.S. dollar per share consideration as in the tender offer.

The acquisition is projected to be accretive to Home Depot’s earnings per share in calendar year 2021. HD Supply has 44 distribution centers located in 25 states and two provinces in Canada.

HD Supply previously was owned by Home Depot, until the home-improvement giant sold it off to private equity firms in 2007. This would later precipitate the company coming public in 2013. Now it seems that Home Depot wants this warehousing company back.

Excluding Monday’s move, Home Depot stock had more or less performed in line with the markets, with its stock up about 11% year to date. In the past 52 weeks, it was up roughly the same.

HD Supply stock traded up 24% Monday morning to $55.73, in a 52-week range of $21.69 to $46.93. The consensus price target is $46.00.

Home Depot stock was up 1% at $280.30. It has a 52-week range of $140.63 to $292.95 and a consensus price target of $303.87.

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