The Day The Music DiedBanks And Private Equity Stop An LBO Tango

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Everyone in town is scrambling to find out the latest news on the sale of Home Depot's wholesale supply unit. As first reported by Dennis Berman on the Wall Street Journal's Deal Journal, the banks providing financing for the deal have balked at the terms. (Earlier versions hinting that this was on the way came from the New York Times and the Financial Times.)
The situation has been described as "ugly" and "hostile." The private equity firms involved — Bain Capital, Carlyle Group, and Clayton, Dubilier & Rice — have been trying to cut the purchase price. Home Depot was reportedly ready to accept a $1.2 billion haircut on the $10.3 billion deal. But the banks — J.P. Morgan Chase & Co., Lehman Brothers Holdings Inc. and Merrill Lynch & Co — are still resisting providing funding, and are said to be preparing for a possible lawsuit from their private equity clients.
According to Berman, there is a possibility that "the deal could fall apart entirely, which would be a massive blow to Home Depot and a threat to the LBO pipeline that remains — roughly $225 billion of financing for deals, in fact."
In short, the deal is being looked at as a test case for how the various players in the leverage buyout business will deal with the credit crunch and housing market slowdown. And right now it looks like everyone is flunking, at least if the grades are based on "playing well with others."
We spoke with some people at Lehman this morning who were not working on the deal but are familiar with its progress. One described the situation as "radioactive." We're not even sure what that means but it sure doesn't sound healthy!
So far, it seems we haven't been able to crack the deal to get at real sources. We're not making any progress. What are you hearing? Leave a comment or send an email to tips@dealbreaker.com.
Home Depot: A 2X4 Upside the Head [Deal Journal]
Home Depot Talks On Unit Get Hostile [Wall Street Journal]

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