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Tickers in this Article: HD, LOW, SHLD
On Tuesday, the Wall Street Journal reported that a trio of investors (Bain Capital LLC; Clayton, Dubilier & Rice; and Carlyle Group) have agreed to buy Home Depot's (NYSE: HD) wholesale construction supply business for a little more than $10 billion.

Home Depot has not publicly commented on the reported transaction. However, if true, I think it would be a big boon both for the home improvement center and its shareholders.

What makes me so bullish on this reported deal? In a word, flexibility.

You see, if the transaction is consummated as reported and the company is able to raise $10 billion in greenbacks, it has a host of options that it didn't have before. For example, it could return some of the funds to shareholders in the form of a dividend. It could also use some of the money to repurchase shares.

I also suspect that some of the money could be used to ramp up advertising and promotions - to help the company steal back market share from Lowe's (NYSE: LOW). Almost certainly a percentage could be allocated to hire more staff.

This could be the huge catalyst that analysts and investors have long been waiting for. (To learn more on Catalysts, read Trading On News Releases.)

Stock Price Remains Flat
There has been very little movement in the stock so far. I think people are focusing on the weak housing numbers, and the growing reluctance among consumers to part with their hard earned money. Furthermore, I think a significant number of investors were turned off by Home Depot's ex-CEO Bob Nardelli, and his inability, or unwillingness, to unlock shareholder value.

But again, if a deal is completed, I suggest this will all change. It would prove that current CEO Frank Blake and his team are seriously focused on driving the stock price higher.

Other Attractive Features
There are some other things that I like about Home Depot. For example, according to its latest financials, it's got roughly $37 billion in cash, short term investments, and property and equipment combined. That equates to about $18 per share in some pretty hard assets.

Then there is the roughly $7 per share it has tied up in inventories. Don't forget about the value of its vast geographic footprint, and its household name. In the grand scheme of things, investors have placed very little value on the future earnings potential of the company.

Sears Merger?
Finally, there's the Sears (Nasdaq: SHLD) wild card. As I mentioned in an article back in early May, some have speculated that Sears and Home Depot might join forces. (To read the full article, see Sears On The Prowl?.)

The logic being that the combined entity could probably save a fortune on distribution, since both companies operate in many of the same markets. One could also argue that the combined company would also have much more leverage over vendors.


Now, is a combination with Sears imminent? I don't think so. But, as I mentioned in my previous article, both companies are going through a bit of a rough patch and are under pressure from their shareholders to unlock as much value in as little time as possible. So, you never know.

The Bottom Line
To be perfectly clear, I'm not suggesting that this is the time to go headlong into Home Depot stock. However, I am going to keep my eyes on the stock, because once the housing market does look like its leveling off, I'll want to pounce.

Home Depot is a solid company; it's simply a matter of timing an entry point.

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