Home Improvement Making Deals
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Home Depot (NYSE: HD) announced recently that they will be paying $12.50 per share to acquire US Home Systems (NASDAQ: USHS), a supplier of kitchen and bath products, representing a 38% premium for shareholders at the time. This will allow Home Depot to boost its home service business. The deal is expected to close by the end of the year. US Home Systems manufactures, designs, sells, and installs custom kitchen and bathroom cabinets and organizational storage systems for closets and garages. The company markets, sells, and installs its products and services through Home Depot. Bringing US Home Systems under Home Depot’s roof assists in expanding its home service offerings even further. The deal was unanimously approved by the US Home Systems board of directors. The companies already had a long-standing business relationship, with the company already serving Home Depot in 66 markets in the U.S. plus two in Canada.
The Home Depot deal comes on the heels of rival Lowe’s (NYSE: LOW) attempt to purchase Canadian retailer Rona for $1.75 billion. The deal was rejected with much adversity from the Quebec government. The Teamsters Union in Quebec has also spoken out against the deal. Rona’s board of directors agreed. According to Rona, the unsolicited offer was not in the best interest of its shareholders. In fact, several Rona store owners have been increasing their positions in the hardware store over the past weeks, striving to block the takeover. There is concern that Lowe’s buying Rona would mean further consolidation in an industry already dominated by three large players. Currently, 525 Rona stores are under the control of franchisees and affiliates. These store owners worry about the changes that would come with the takeover. They see a large risk ahead.
Both Home Depot and Lowe’s have been largely affected by the decline of the housing market in the U.S. However, both retailers have continued to meet expectations. As consumers wait for the housing market to rebound, they are improving their homes, which is driving sales for these two companies. Still, that is not enough. Both companies were recently downgraded to a neutral from a buy rating. This downgrade was based on moderating sales trends, full valuations, and concern that earnings risk is worsening due to more difficult sales comparisons. Both companies are making the right strategic moves and performing as well as can be expected, but consumer spending is still tightened and both companies are spending on expansion, which weakens their profits.
Though the current outlook may not be appealing to analysts, both companies are positioning themselves to be in prime positions to take advantage when the housing market and consumer spending rebounds back to pre-recession levels. Home Depot’s offer to buy US Home Systems simply means it will have a more complete offering for its customers when they start spending on home improvements and renovations again. Lowe’s offer for Rona, though failed, might still work out in the end, as one major shareholder is for the deal. This would greatly expand Lowe’s current market share. Both companies are doing all that can be done and preparing for future success. In the long-term both companies will stand strong.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend The Home Depot and U.S. HOME SYSTEMS, INC.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.