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HD Supply to Sell White Cap Unit to Clayton, Dubilier & Rice

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HD Supply Holdings, Inc. announced that it entered a contract with private equity firm Clayton, Dubilier & Rice, for the divestment of its Construction & Industrial business segment (“White Cap”). The aforementioned deal, which is expected to be completed in October 2020, conditioned on certain regulatory approvals, is valued at $2.9 billion in cash.

White Cap is primarily engaged in distributing specialty hardware, material, tools and safety supplies to concrete and general contractors in North America. Notably, HD Supply previously intended to separate its White Cap business into an independent publicly-traded company.

The company noted that the divestment transaction will enable it to concentrate more on its Facilities Maintenance business segment. Also, it anticipates achieving net proceeds of $2.5 billion from the transaction, which it intends to utilize on rewarding its shareholders apart from funding its acquisition programs and repaying debt.

Existing Business scenario

HD Supply’s hospitality business, which accounts for a significant portion of Facilities Maintenance sales, is experiencing a soft demand environment amid the coronavirus outbreak. The company expects the business to have the longest path of recovery compared to its other businesses. Also, its non-hospitality businesses are witnessing weaknesses across their end-markets.

Also, the company has been witnessing a shift in customer demand toward low-ticket products like hand sanitizer and protective masks, owing to the pandemic. Although its order volume remains strong, its average order size has dropped significantly as demand for higher-ticket items such as HVAC and appliances declined.

In addition, a highly leveraged balance sheet can be detrimental to HD Supply's profitability. Notably, exiting the first quarter of fiscal 2020, its long-term debt, excluding current installments, remained high at $2,033 million.

However, signs of recovery in living space MRO and specialty construction markets bode well for the company. In addition, the Facilities Maintenance segment has been benefiting from higher demand for its healthcare products.

The Zacks Rank #4 (Sell) company’s shares have gained 0.9% compared with 9.1% growth recorded by the industry in the past six months.

 

 

Stocks to Consider

Some better-ranked stocks are AGCO Corporation (AGCO - Free Report) , Graphic Packaging Holding Company (GPK - Free Report) and Berry Global Group, Inc. (BERY - Free Report) . While AGCO sports a Zacks Rank #1 (Strong Buy), Graphic Packaging and Berry Global carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO delivered an earnings surprise of 409.54%, on average, in the trailing four quarters.

Graphic Packaging delivered an earnings surprise of 16.53%, on average, in the trailing four quarters.

Berry Global delivered an earnings surprise of 16.34%, on average, in the trailing four quarters.

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