Home Depot is selling off its underperforming HD supply unit to a trio of private equity groups for $10 billion dollars.
The announcement follows news that home construction levels fell in May, thanks to the continuing oversupply of existing homes and the overall slump in the housing market.
The HD supply chain will be carved up by the Carlyle Group, Bain Capital, and Clayton Dubilier & Rice.
The unit was originally designed to provide supplies for retail construction to bolster Home Depot's signature home construction supply business, but failed to provide significant gains since its inception in 2000.
The HD supply business was the brainchild of former Home Depot CEO Robert Nardelli, whose tenure as CEO ended amid a lagging stock price, declines in customer service and criticism of his hefty compensation package. Nardelli resigned in January with a golden parachute of nearly $300 million.
Shareholders tried to sue to block Nardelli from receiving his compensation package, but an Atlanta judge turned aside the effort.
While Nardelli did just fine, Home Depot's stock remained relatively flat during the hottest years of the housing boom, and problems with its customer service and supply for homeowners have been a frequent source of complaints by ConsumerAffairs.com readers.
The Bottom Keeps Dropping
The faltering housing market has extended beyond sales of new and existing homes to affect homebuilders, contractors, and supply chains such as Home Depot, Lowe's, and so on. The Commerce Department reported that construction of new homes and apartments dropped by 2.1 percent to a seasonally adjusted level of 1.4 million units -- a 24 percent drop from the previous year.
And the National Association of Homebuilders' (NAHB) survey of its members found the lowest levels of optimistic sentiment for the market since February 1991, a time period when the housing market was experiencing another pronounced downturn.
Foreclosures have reached record levels during the current housing slump, putting even more homes on the market and forcing sellers to slash prices and offer incentives to get wary buyers to close the deal.
Meanwhile, overtaxed consumers are reeling in spending in the wake of high gas prices and maxed-out credit card debt, which means fewer splurges on home improvements.
Analysts are continually revising their forecasts downward for the market, with some saying that a recovery for housing will not occur until well into 2008.
The downswing in new housing production is still underway, said David Seiders, chief economist for NAHB, in a statement accompanying the survey results. We still expect starts and permits to bottom out late this year before a systematic recovery process begins in 2008.