Home Depot Beats Lowe’s to Merger Punch

Home improvement giant Home Depot Inc. (NYSE: HD) announced this morning that it has reached a definitive merger agreement with U.S. Home Systems Inc. (NASDAQ: USHS). Home Depot will acquire the kitchen and bath products and services firm for $12.50 per share, or about $93 million in cash. The price reflects a premium of about 38% to yesterday’s closing price of U.S. Home Systems.

Home Depot competitor Lowe’s Companies Inc. (NYSE: LOW) has made an unsolicited bid for Canadian home-improvement chain Rona Inc., but the Canadian firm has rejected the $1.75 billion bid as not in the best interests of Rona’s shareholders. Lowe’s is also battling the provincial government of Quebec, which has declared that Rona is strategic asset and has vowed to help the Canadian firm beat back the takeover by Lowe’s.

The deal between Home Depot and U.S. Home Systems is much smaller, obviously, but it has been done with no fuss and no bother, something that cannot be said for Lowe’s attempt to get hold of Rona. Lowe’s rejected offer reflected a 41% premium to Rona’s 20-day average closing price, but is less than 2% above the stock’s book value. That is not good enough according to some analysts, who believe that Lowe’s will have to sweeten its offer by at least CDN$1.50 to CDN$16.00 a share to nab Rona.

Shares of U.S. Home Systems are up 37% in premarket trading at $12.41, in a 52-week range of $3.85 to $14.81. Home Depot’s shares are inactive this morning, having closed at $52.00 last night.

Paul Ausick