UPDATE 3-Home Depot says sale price for unit may be cut

(Recasts with details; updates shares to close)

By Karen Jacobs

ATLANTA, Aug 9 (Reuters) - Home improvement retailer Home Depot Inc. (HD.N) said on Thursday it was in talks that could cut the $10.3 billion sale price of its wholesale supply business and it reduced the price range of a share buyback.

The announcement helped drive Home Depot shares down 5.3 percent, compared with a 2.8 percent slide in the Dow Jones Industrial Average, of which it is a component.

The renegotiation of Home Depot Supply's sale to Bain Capital Partners, the Carlyle Group and Clayton, Dubilier & Rice is the latest sign that difficulty in raising debt to fund takeovers is starting to crimp deal prices and prompt buyers to seek to amend previously agreed transactions.

Atlanta-based Home Depot announced in June the sale of the supply unit, whose main customers include home builders, cities and other contractors.

It said then that the buyers would have to pay a $309.75 million termination fee under certain circumstances if the deal fell through.

A spokeswoman for Home Depot declined to comment when asked why the retailer had entered into renegotiations.

On Thursday, Home Depot also cut the price range for its "Dutch auction" tender offer to $37 to $42 a share, from the previous $39 to $44, citing "current financial market conditions."

Home Depot said its offer to buy back 250 million shares was not conditioned on the closing of the supply sale. But it said in June that it planned to partly finance stock repurchases with proceeds from that sale.

Giri Cherukuri, head trader at Oakbrook Investments, which owns 600,000 shares of Home Depot, said the renegotiation may signal that private equity firms are not willing to pay $10.3 billion for Home Depot Supply, which distributes a wide range of building materials to contractors.

"There may be difficulty raising the money; and second, they (private equity firms) could see that the housing market might be worse than expected," Cherukuri said.

He said private equity firms may have been planning to issue debt to fund the purchase of the supply unit, a prospect that now may be complicated by turmoil in the credit markets as borrowing costs rise in wake of subprime mortgage troubles.

MORE BUYBACKS

The retailer also announced in June a recapitalization under which it planned to buy back $22.5 billion in stock, using funds from the supply sale, existing cash and new debt. Then in July, Home Depot announced the tender offer.

In recent weeks, Home Depot shares have dipped $2 below the original price it set for the planned repurchase. The tender offer now expires on Aug. 31 instead of Aug. 16.