Home Depot sells unit at discount

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US DIY chain Home Depot is to sell its supply unit for $8.5bn (£4.23bn) - $1.8bn less than initially agreed.

The HD Supply sale comes days after intense talks between Home Depot and the buyer, a private equity consortium.

The consortium, led by Bain Capital Partners, had agreed an original price of $10.3bn in June.

But a steep downturn in the US housing market, as well as recent turbulence in the credit market, forced the two sides back to the negotiating table.

Home Depot said it should net around $7.9bn from the deal which is expected to go through on Thursday.

New terms

Under the new agreement, all of the parties involved were forced to stump up more cash to shore up the financing of the deal.

As a result Home Depot itself will now purchase a 12.5% stake in the whole business for $325m.

It will also guarantee up to $1bn in debt to the banks financing the deal - Merrill Lynch, JP Morgan and Lehman Brothers.

The move marks the first time a major private equity deal has been forced to lower its price since the leveraged buyout boom began almost two years.

In recent years banks have been rushing to lend vast amounts - as well as reap big fees - to private equity firms as they swallowed up a large number of companies, including US utility TXU and UK health and beauty retailer Alliance Boots.

To recoup their capital the banks then resold these debts as high-yield bonds and loans in the credit markets.

However, investors are now reluctant to buy many forms of debt that are not backed by the federal government as a result of the recent problems in the credit markets which were triggered by concerns over sub-prime lending.