Home Depot soars on takeover talk

NEW YORK (CNNMoney.com) -- Shares of home improvement retailer Home Depot jumped Friday on an unconfirmed report the company could be a takeover target for two powerful private equity firms.

A purchase led by the buyout firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group would be priced at around $100 billion, according to a report in Friday's New York Post.

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Reuters reported late Friday that the world's largest home improvement chain reiterated comments made earlier by Chairman Robert Nardelli. The company said late Friday it "has had no discussion about a potential leveraged buyout or recapitalization."

In a filing with the Securities and Exchange Commission, Home Depot said that its board "unanimously" supports the management team and its current strategy, according to the news agency.

The Post report, quoting unnamed sources, said no formal offer has been made but that the buyout firms have met with Wall Street banks about borrowing the funds for what would be the biggest leveraged buyout in history.

Home Depot (up $1.00 to $38.97, Charts) stock soared as much as 5.2 percent in early trading and ended up 2.4 percent on the day. Trading was heavy, with more than 45 million shares changing hands at the New York Stock Exchange, more than three times the stock's average daily volume.

Nardelli earlier had dismissed the speculation in comments to the Atlanta Journal-Constitution, calling the rumor an "an unfortunate distraction."

Nardelli characterized the speculation as investment firms "running numbers" on Home Depot and said the retailer remains "laser focused on running the company as we are," according to the newspaper report.

Home Depot, which operates 2,000 stores nationwide, is the nation's No. 1 home improvement retail chain. It is the No. 2 retailer after Wal-Mart (down $0.23 to $45.87, Charts), a fellow component of the Dow Jones industrial average.

"The statement from Nardelli is an interesting comment because it still leaves open the notion that there have been or will be discussions involving a private equity firm or consortium seeking to buy out the company," said Donald Trott of investment bank Jefferies & Co. "It's very nebulous."

Home Depot, which competes with rival Lowe's (up $0.73 to $30.89, Charts), has been hard-hit by the slump in the real estate market as consumers spend less money on home improvement.

Trott noted that Home Depot has older stores than competitor Lowe's, which has benefited from sales momentum generated when new stores open.

Bill Schultz, chief investment officer with McQueen, Ball & Associates, an investment firm whose $800 million portfolio includes Home Depot, said, "Home Depot, in terms of valuation, is one of the least expensive names. That's probably what is generating interest in them from cash-rich private equity players."

"But Home Dept is a pretty big fish to swallow and it would take quite a sizeable investment to take over this company," said Schultz.

Another analyst viewed the deal as potentially favorable.

"Private equity investors could indeed earn a 20 percent five-year internal rate of return [on the deal] while still rewarding current shareholders with a premium buyout price," Michael Baker of Deutsche Bank Equity Research said in an e-mailed note.

News of Home Depot as a possible takeover target has occurred against a flurry of private equity deals and bids involving KKR and Texas Pacific Group in the past year.

In mid-November HCA, the No. 1 for-profit U.S. hospital operator, was taken private by a group of investors including Bain Capital, KKR and Merrill Lynch's private equity arm.

Texas Pacific Group and Apollo Management made a $15 billion buyout bid for Harrah's Entertainment Inc., (up $0.15 to $78.85, Charts) the world's biggest casino operator, in early October and have since upped the offer to $15.5 billion.

KKR, Silver Lake Partners and AlpInvest Partners NV in August announced a deal to buy 80 percent of Netherlands-based Philips Electronics (up $0.10 to $37.42, Charts)' semiconductor business.

-- CNNMoney.com staff writer Parija Kavilanz contributed to this report

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Bill Schultz does not personally own shares of Home Depot. Jefferies & Co. doesn't own Home Depot stock nor does it have a banking or advisory relationship with the company. Don Trott owns stock of Home Depot and Lowe's. Deutsche Bank does or seeks to do business with Home Depot.