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Home Depot Takes Less for Supply Unit

The company also affirms its forecast.
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Home Depot

(HD) - Get Home Depot, Inc. (HD) Report

confirmed that it will sell its supply division for a lower price than it first planned, saying it will accept $8.5 billion from a group of

private-equity investors.

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Affiliates of Bain Capital, Carlyle Group and Clayton Dubilier & Rice are acquiring the supply unit. The purchase price is about $1.8 billion less than what had been contemplated earlier.

Home Depot will actually pay out $325 million to keep a 12.5% equity stake in the business, and it will guarantee a $1 billion senior secured loan for financing the acquisition. The Atlanta-based seller of tools and lumber expects to net around $7.9 billion in cash proceeds from the sale.

"Despite the softness in the financing and residential construction markets, the terms of the HD Supply sale deliver shareholder value today and in the future as we will share in HD Supply's upside potential. We are now focused on our retail business," said Frank Blake, chairman and CEO of Home Depot.

At the same time, Home Depot reiterated its outlook, saying earnings from continuing operations should decline 12% to 15% for fiscal 2007. Consolidated earnings per share will likely drop 15% to 18% this year.

The sale of the supply unit shouldn't have have a material effect on Home Depot's full-year financial results. Home Depot was up 23 cents to $35.25 in premarket trading Tuesday.