Investor wants Home Depot review
ATLANTA -- Home Depot Inc., the world's largest home-improvement retailer, said investor Ralph Whitworth wants independent directors to study "strategic alternatives" and evaluate chief executive Robert Nardelli's performance.
Whitworth, known for pushing changes in companies he invests in, plans to submit a proposal for Home Depot's next shareholder meeting, usually held in May, and might nominate directors. Home Depot will oppose the plan and meet with Whitworth next year. Relational Investors LLC, co founded by Whitworth, owns 13 million shares, or 0.6 percent, of Home Depot.
Home Depot is headed for its smallest annual net income gain in at least nine years as slowing home sales crimp home-improvement spending. Nardelli angered some investors with the size of his pay package and the company's performance in his six years at the helm.
"There is a lot of value in this company that has not been unlocked," said Patricia Edwards, a Seattle-based money manager at Wentworth, Hauser & Violich. "Sometimes you need to take management out and knock a little sense into them." The firm manages $8.2 billion in assets including Home Depot shares.
Home Depot hasn't disclosed a date for its next annual shareholder meeting.
Home Depot's stock rose 7 cents to $39.96. It is down 8.4 percent since Nardelli took over in December 2000, while the Standard & Poor's 500 index is up 3.3 percent.
The board has "enormous responsibility" and a chance to "reverse the company's chronic inferior stock" performance since 2000, Whitworth said. Home Depot's performance is due to "deficient strategy, operations, capital allocation, and governance."
Whitworth proposes considering a spinoff of Home Depot's wholesale business and said he doesn't necessarily want Nardelli replaced. Management needs to focus on the retail stores and stop investing in its professional supply division, which he called "strategic adventurism."
"They've made a series of common errors but exceedingly reversible ones," Whitworth said in an interview. "This thing could be turned around in a relatively short time frame, a year or two."
Whitworth said he will seek at least two board seats, one each for himself and co founder David Batchelder. His firm now owns about $1 billion in Home Depot stock.
"We're long-term investors," he said. "We'll be very persistent and tenacious until they correct this strategic direction."
Whitworth said Home Depot's stock is undervalued by 50 percent.
"It's a great franchise, a better franchise than" Lowe's Cos., he said. "They should invest in that and improve the quality of their customer service and then harvest this beautiful, mature business for return to shareholders. It's simple: Mind the stores."
Nardelli has drawn criticism for receiving $225 million in compensation since joining Home Depot. Bonnie Hill, chairwoman of the board's compensation committee, has said directors will reexamine the performance measures on which Nardelli's pay is based. Home Depot has said almost half Nardelli's compensation is in options that are valued at less than the current stock price.
Home Depot directors might want to take the company private, the New York Post and the CNBC television network have reported, citing unidentified sources. Nardelli, 58, said management wasn't interested in a buyout. Four directors plan to retire over the next year and a half, Home Depot has said.
"Home Depot is not a sick company," said Marvin Roffman, of Roffman Miller Associates in Philadelphia, which owns Home Depot shares among $410 million in assets. "The slowdown in the economy is really affecting a lot of retailers. I don't see anything wrong with management or the company."
