Sunday, January 21, 2007

Home Depot Directors to Visit Activist Investors

Several Home Depot Inc. board members are expected by midweek to visit with activist investor Ralph V. Whitworth, who has threatened to launch a proxy fight for a board seat if the company doesn't reassess its business strategy.
Mr. Whitworth, a principal of San Diego-based investment fund Relational Investors LLC, was a leading critic of former Chief Executive Robert Nardelli's performance. And the activist investor maintains that some big changes are needed to boost the company's stagnant stock price now that Mr. Nardelli is gone.
Even though Home Depot is extending the olive branch to Mr. Whitworth, future spats are likely. Mr. Whitworth, 51 years old, has said he wants Home Depot to spin off its lower-margin supply business and focus on its stores, while newly appointed CEO Frank Blake remains committed to continuing Mr. Nardelli's diversification strategy that Mr. Blake himself helped craft and implement.
Home Depot has spent $7 billion acquiring wholesale-supply businesses in the last several years. "They should sell them and get what they can for them, because they make no sense," Mr. Whitworth told The Wall Street Journal in December, after his efforts to raise a fuss at Home Depot became public. Mr. Whitworth, whose fund owns a 1.3% stake in the retailer, had alerted Home Depot that the fund planned to introduce a resolution at Home Depot's May shareholder meeting asking the board to establish a committee of independent board members to review the company's strategic direction, management performance and to explore possible alternatives, including a sale of the company.
Citing a recent visit to a San Diego Home Depot, where he couldn't find a salesperson to help him, Mr. Whitworth said in December that the company's flagging customer service was one reason competitor Lowe's Corp. was "taking them to the cleaners" and that the company shouldn't be pursuing acquisitions until it adequately invests in its stores.
Home Depot has been courting Mr. Whitworth ever since Mr. Nardelli abruptly resigned Jan. 2, after declining to curb his pay package significantly. The board members are meeting with Mr. Whitworth to signal that the board is anxious to hear Mr. Whitworth's ideas for improving the company, according to someone close to the board.
Whether the visit will succeed in quieting down Mr. Whitworth, who has a long track record of shaking up underperforming companies, is unclear. "Nardelli was a peace offering by the board, but they are not going to have peace" with Mr. Whitworth, predicts Randy Lampert, one of the two heads of the recently formed shareholder-activist group at investment bank Morgan Joseph & Co. The group advises firms that have been targeted by activist shareholders. Home Depot isn't a client.
What's more, Mr. Whitworth has already made up his mind to seek at least one seat on the Home Depot board regardless of what he hears from board members, according to a person familiar with the situation.
The Whitworth visit is the latest chapter in a charm offensive that began after the 57-year-old Mr. Blake suddenly was placed in command of the second-biggest retailer in the U.S. Mr. Blake has already talked to Wall Street analysts and impressed them with his down-to-earth manner, a big change from the imperious Mr. Nardelli.
Mr. Blake also stressed to analysts his interest in improving the store experience, hiring executives with the retail experience he lacks and restoring the company's entrepreneurial and fun culture.
While Mr. Blake is promising a new day at Home Depot, the board in numerous ways has strongly telegraphed that it is still committed to its previous strategic path. For starters, it selected as CEO Mr. Blake, who has no previous retail experience and was the chief architect of the wholesale-building-supply division. Mr. Blake recently told investors he is adamant about pursuing growth in that segment.
Meanwhile, on the same day it announced Mr. Nardelli's resignation, Home Depot said it was waiving mandatory retirement for a year for three directors who otherwise would have to step down because they are past 72 years old. The company said in a statement that it wanted the directors to provide continuity during this time of change, but others see it as a move to block
Mr. Whitworth's attempt to run for any seats.
Write to Ann Zimmerman at and Joann S. Lublin at

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