Stoked by rumors of a possible Home Depot acquisition bid, Hughes Supply’s stock traded at more than 10 times its usual daily volume on Nov. 2 after the company said it was looking at “strategic alternatives” to maximize shareholder value.
The Orlando-based Hughes traded at 4.5 million shares — more than 10 times its usual daily volume — to close at $36.75 on Nov. 2.
The announcement of a review of “strategic alternatives,” follows speculation that Atlanta-based Home Depot Inc., the nation’s No. 1 home improvement retailer, is looking at buying Hughes. In a press release dated Oct. 31, Hughes said it has formed a special committee of independent directors to seek alternatives to help raise Hughes’ profile.
“There are, of course, a multitude of ways to maximize the company’s potential and enhance shareholder value,” said President and CEO Tom Morgan in a statement. “After considering various factors, including our company’s continued strong performance, our enviable market position and product portfolio, and the acceleration of industry consolidation, the board unanimously determined that now is an appropriate time to evaluate all strategic alternatives.
A spokeswoman for Hughes Supply said it was the company’s policy not to comment on rumors, but talk of a Home Depot bid had been out there for years.
At the Robert W. Baird 2005 Industrial Conference held Nov. 8, Hughes gave a presentation and talked about long-term opportunities. According to Baird analyst David Manthey, strategic alternatives for Hughes include staying the course, staying the course with a divestiture, going private, or merging. “That’s the entire range of possibilities for the company from here,” he said.
He said he would be surprised if a private equity company bought Hughes because among other reasons, he thinks of private equity companies as usually buying companies when they are out of favor.
There are two groups that could potentially buy Hughes Supply, said SunTrust Robinson Humphrey analyst Keith Hughes.
There’s Home Depot, obviously, and then there are other various financial firms that would take the company private. Those two groups of buyers are the most logical right now,” he said.
Believe me there are a lot of financial firms out there, the private equity firms. They have placed so much money as a group over the last few years. It is astounding how much money they can put to work.
Hughes has grown rapidly in recent years through acquisitions. One of its biggest acquisitions was its 2003 purchase of Century Maintenance Supply Inc. for $360 million in cash. The acquisition was aimed at making Hughes a leader in the apartment maintenance, repair and operations (MRO) market, enabling it to more effectively serve national property management companies throughout the United States and facilitating its entry into other adjacent MRO markets. Some industry insiders believe this portion of the Hughes Supply business would be a good match for Home Depot’s Maintenance Warehouse operation, which focuses on serving industrial MRO customers.
Home Depot has expanded far past its core focus on sales to home owners in recent years. The company has acquired flooring companies and other businesses in recent years as it expands its Home Depot Supply division that caters to home builders, facility maintenance professionals, contractors and landscapers.
In January, the company bought Litemor Distributors, Canada’s largest national commercial lighting distributor, to expand its reach into the Canadian market’s commercial and institutional sectors.
Home Depot made its first move into electrical distribution outside its retail home centers when it bought Georgia Lighting Supply Co. Inc., Atlanta, one of the largest specialty retailers and distributors in the country at the time of the acquisition, in 1999.
According to an article that appeared on Nov. 2 in the Orlando Sentinel, Tom Morgan, Hughes’ chief executive officer, told employees in a letter on Nov. 1, “Our current business plan remains in place. We remain steadfast to our long-term goal of becoming a $20-billion company.
Hughes, with more than 500 locations in 40 states, made more than $123 million last year on sales of $4.42 billion. The company’s electrical division ranked eighth on Electrical Wholesaling magazine’s Top 200 Electrical Distributors listing in 2005. The electrical business accounted for about 10 percent of Hughes’ 2005 overall sales.
In the last year, Hughes has acquired a number of companies, including Southwest Power Inc. and Western States Electric Inc.; Todd Pipe & Supply, one of the largest independent wholesale plumbing suppliers in southern California and Las Vegas; Standard Wholesale Supply Co., a distributor of waterworks, electrical and plumbing products primarily serving residential and infrastructure water and sewer contractors and customers in Las Vegas; and Century Maintenance Supply Inc. In 2003, Hughes acquired substantially all of the net assets of Marden Susco, a southern California supplier of underground piping products for use in municipal water, sewer and storm drain systems.