Home Depot: A Big Orange Buyout?

The shares rose Friday on reports of possible private equity interest in the retailer, but CEO Nardelli downplayed the idea

Home Depot's (HD) share price rose more than 2% on Dec. 1, after press reports about a possible private-equity buyout of the home improvement retailer. The company's CEO, Robert Nardelli, quickly downplayed the idea.

The Atlanta company's spokesman, Jerry Shields said Home Depot "doesn't comment on rumor and speculation." But in a Dec. 1 speech to a suburban Atlanta business group, Home Depot CEO Bob Nardelli called the reports "an unfortunate distraction" as he downplayed their significance. "On any given day we are running numbers on lots of other companies," Nardelli told the Cobb County Chamber of Commerce, according to the Atlanta Journal-Constitution. "Somebody is probably running the numbers on us on any given day."

Investors bid up the stock 2.3% to $38.34 per share in early trading on the New York Stock Exchange. The New York Post reported Nov. 30 that buyout firms, including Kohlberg Kravis Roberts & Co. and Texas Pacific Group, have been exploring the possibility of a record $100 billion leveraged buyout of the company. CNBC had reported news of the potential takeover the previous day, the Post said.

Molly Morse, a spokeswoman for Kohlberg Kravis Roberts, said on Dec. 1 that "it is KKR's policy to decline comment on rumor and speculation." Texas Pacific Group also declined comment.

Home Depot's stock has languished recently during tough times as the housing market slows. Meanwhile, critics have lambasted CEO Nardelli in recent months for things that range from his compensation to his company's fumbles on customer service. Home Depot hit a low for the year of $32.85 per share on July 18, after having plummeted from a high of $43.95 on March 23.

"While we think that ultimately it is unlikely that a deal will take place, we are not surprised by private equity interest, given Home Depot's depressed share price over the past few years," Standard & Poor's equity analyst Michael Souers said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) He kept his $48 12-month target price, which values Home Depot at about $100 billion. An LBO of that size would be the largest in history, Souers says.

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