Wednesday, June 20, 2007

Home Depot: An Activist on the Board

An activist on the board.
An activist on the board.
Hi-ho, the dario,
an activist on the board.

After the close, Home Depot (NYSE: HD) announced an astonishing $22.5 billion increase to its share repurchase program. The Company will fund the $22.5 billion share repurchase with the net proceeds from the sale of HD Supply, existing cash on hand and the net proceeds from an anticipated $12 billion issuance of senior unsecured notes.

As you may recall, activist firm Relational Investors was awarded a board seat in February as part of a settlement on corporate governance matters. Relational was instrumental in getting former-CEO Bob Nardelli ousted and getting the company to look at a sale of the supply business, which was also announced yesterday. It can also be safely assumed that they had something to do with the buyback decision.

Here is my guess on how the board meeting went:

Frank (Blake, Chairman): But David (Batchelder from Relational), if we take on this much debt the credit agencies will cut our ratings.

David: F%@^ those pricks. Lever up that damn balance sheet.

Frank: But David, what about our customers? We can spend the money improving service.

David: F@^! the damn customers, shareholders are what matters. The customers can figure it out through trial and error or eventually they will run into what they are looking for walking around the stores.

Other Board Members: Proposal approved. What should we do next David?

Relational Investors' other holdings: ConAgra Foods (NYSE: CAG), Prudential Financial (NYSE: PRU), National Semiconductor (NYSE: NSM), Baxter International Inc. (NYSE: BAX), Sovereign Bancorp (NYSE: SOV), Unum Group (NYSE: UNM), Analog Devices Inc. (NYSE: ADI), and Sprint Nextel (NYSE: S).

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