HD Supply Said to Join CDW in Paring IPO Amid Stock Declines

HD Supply Holdings Inc. (HDS) and CDW Corp., which had sought a combined $1.97 billion in U.S. initial public offerings this week, plan to sell stock for less after markets tumbled, said people with knowledge of the matter.

HD Supply told prospective investors it’s offering shares for $18 to $20, compared with an original range of $22 to $25, said two people, who asked not to be named because the information isn’t public. CDW lowered its range to $17 to $18 from an earlier range of $20 to $23, according to a regulatory filing. Both IPOs are scheduled to price today, data compiled by Bloomberg show.

The companies scaled back their offerings after U.S. stocks declined 3.9 percent in the week through yesterday as investors anticipated U.S. Federal Reserve Chairman Ben S. Bernanke will wind down stimulus measures. At least 81 companies have completed U.S. IPOs this year, compared with 70 in the year-earlier period, data compiled by Bloomberg show, as the Standard & Poor’s 500 Index climbed to a record last month.

“It feels like people have kind of taken a step back,” Tim Cunningham, who helps oversee $84 billion at Thornburg Investment Management Inc. in Santa Fe, New Mexico, said in a telephone interview. “It’s been a tough few weeks, sentiment has turned down quite a bit and it’s definitely harder to bring deals.”

Photographer: David Paul Morris/Bloomberg

HD Supply Holdings Inc. is owned by Carlyle Group LP, Bain Capital LLC and Clayton Dubilier & Rice LLC. Close

HD Supply Holdings Inc. is owned by Carlyle Group LP, Bain Capital LLC and Clayton Dubilier & Rice LLC.

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Photographer: David Paul Morris/Bloomberg

HD Supply Holdings Inc. is owned by Carlyle Group LP, Bain Capital LLC and Clayton Dubilier & Rice LLC.

Valuation Concern

HD Supply reduced its price range after investors raised concerns over the company’s debt level, one of the people familiar with the matter said. Buyers are concerned that rising interest rates could drag down the growth rate for HD Supply’s business, making it harder for the company to repay debt, the person said.

The midpoint of HD Supply’s original price range would have generated $1.16 billion of net proceeds to the company, which it planned to use to reduce long-term debt to $5.6 billion, filings show. That level still would have exceeded a $4.3 billion valuation for the company’s outstanding stock, data compiled by Bloomberg show.

HD Supply’s current owners Carlyle Group LP, Bain Capital LLC and Clayton Dubilier & Rice LLC bought the company from Home Depot Inc. in the midst of the housing crash, at the tail end of history’s biggest buyout boom. That acquisition, initially valued at $10.3 billion including debt when it was announced in June 2008, was scaled back to $8.5 billion by the time it was completed two months later.

HD Supply Buyout

The onset of the worst housing slump since the Great Depression almost derailed the HD Supply buyout as lenders balked at financing the takeover amid tightening credit markets, people familiar said at the time.

At $20 a share, the top of the new range, HD Supply’s private-equity backers will just break even on their original equity investment. Investors in the buyout paid an average of $19.99 a share for their stake, company filings show.

The housing slump ate into profit at HD Supply, whose adjusted earnings before interest, taxes, depreciation and amortization tumbled from $964 million in the year before the buyout to $343 million in the fiscal year ended January 31, 2010. The earnings measure, adjusted to reflect costs of extinguishing debt and stock-based compensation, has since increased to $714 million in the 12 months through May 5, filings show.

Debt Investment

Apart from their equity investments, Bain, Carlyle and Clayton Dubilier & Rice amassed stakes in HD Supply’s bonds during their ownership, when the company’s earnings ebbed. The value of that debt has increased. In a 2011 letter to investors that Bloomberg obtained, Carlyle marked the value of its HD Supply debt investment at almost twice its cost.

Representatives for Atlanta-based HD Supply didn’t return calls seeking comment.

CDW’s private-equity owners, Madison Dearborn Partners LLC and Providence Equity Partners Inc., had planned to offer 4.65 million shares in the IPO and are no longer planning to do so, filings show. CDW is still selling 23.3 million shares.

Representatives for CDW, based in Vernon Hills, Illinois, didn’t return calls seeking comment. Officials at Madison Dearborn and Providence declined to comment.

CDW had originally planned to seek as much as $641.7 million selling 27.9 million shares on behalf of itself and existing holders, regulatory filings show. Industrial-supplies distributor HD Supply had sought as much as $1.33 billion selling 53.2 million shares, filings show.

2007 Buyout

CDW’s IPO is being led by JPMorgan Chase & Co., Barclays Plc and Goldman Sachs Group Inc., while HD Supply’s offering is being managed by Bank of America Corp., Barclays, JPMorgan and Credit Suisse Group AG.

CDW was purchased in October 2007 in a transaction valuing the company at $7.28 billion including debt, data compiled by Bloomberg show. The midpoint of the lowered price range values the company at about $6.2 billion including debt, after a reduction in borrowings using IPO proceeds, the data show.

Private-equity-backed companies including Quintiles Transnational Holdings Inc. (Q) and Pinnacle Foods Inc. priced their IPOs at the top of proposed price ranges earlier this year. Both stocks have risen since their debuts.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net

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