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.

The retailer said about 3.05 million shares had been tendered to it as of Aug. 8. It said stockholders who have tendered shares at prices of $42.25 to $44 would need to submit new tenders if they still wanted to sell their shares.

"I'm not that surprised to see the (tender) amendment because stock prices across the board, not just at Home Depot, have dropped significantly in the past several weeks," said Tiffany Co, a director in the retail group with Fitch Ratings.

She said Home Depot was able to fund the current repurchase, as it has received a commitment for a $10 billion credit facility from Lehman Commercial Paper Inc. LEH.N, Merrill Lynch Capital Corp. MER.N and some of their affiliates.

But Co cautioned that in the future, "if Home Depot's operating performance is weaker than expected, it would be difficult to do any more share buybacks," clouding prospects for the rest of the recapitalization.

Results at Home Depot and rival Lowe's Cos (LOW.N) have weakened over the last year as falling U.S. home sales and construction hurt sales.

Last month, Home Depot said its per-share profit could fall 15 percent to 18 percent this year, citing the weak U.S. housing market and including the expected sale of the supply business. In February, it had projected a 4 percent to 9 percent fall in earnings per share.

Home Depot shares closed down $2.01 to $35.79 on the New York Stock Exchange. Lowe's shares finished down $1.04, or 3.7 percent lower, at $27.43.

So far this year, Home Depot's stock is down 10.9 percent while Lowe's is off 11.9 percent. (Reporting by Karen Jacobs)