Embattled Depot CEO Nardelli Resigns
Robert Nardelli Resigns as Chairman and Chief Executive Officer of The Home Depot and Is Succeeded by Frank Blake.
January 3, 2007
Robert Nardelli Resigns as Chairman and Chief Executive Officer of The Home Depot and Is Succeeded by Frank Blake
ATLANTA, Jan 03, 2007 -- The Board of Directors of The Home Depot and Bob Nardelli announced today that they have mutually agreed that Nardelli would leave his position as The Home Depot's chairman, president & CEO and as a Director effective January 2, 2007. Frank Blake, the Company's current vice chairman of the Board of Directors and executive vice president succeeds Nardelli, effective immediately.
The Home Depot's Board said, "We are very grateful to Bob for his strong leadership of The Home Depot over the past six years. Under Bob's tenure, the Company made significant and necessary investments that greatly improved the Company's infrastructure and operations, expanded our markets to include wholesale distribution and new geographies, and undertook key strategic initiatives to strengthen the company's foundation for the future. The Home Depot has delivered strong and consistent growth and gained market share under Bob's leadership, and we believe that the Company is well positioned to continue to do so. We thank Bob for his contributions, hard work and dedication and wish him all the best in his future endeavors."
Frank Blake was elected chairman and CEO of The Home Depot and a full voting member of the Board of Directors.
"The entire Board is pleased to name Frank as The Home Depot's Chairman and Chief Executive Officer. We are fortunate to have someone of Frank's caliber within our organization and believe he is the ideal candidate to succeed Bob," continued the Board of Directors. "While industry conditions remain challenging, we are confident that Frank will effectively execute on the Company's strategy, build upon our legacy of growth, innovation and superior customer service, and deliver value for our shareholders." Since joining The Home Depot in 2002, Blake has served as vice chairman of the Board of Directors and executive vice president. His responsibilities have included strategic business development, growth initiatives, real estate, store construction, credit services, and the Home Services business. Prior to joining The Home Depot, Blake served as deputy secretary for the U.S. Department of Energy (DOE). Prior to that, he served in a variety of executive roles at General Electric, including senior vice president, Corporate Business Development.
"I am honored to lead this exceptional company and build on Bob's significant achievements. The Home Depot has a strong core business and exciting opportunities in its adjacent businesses. I believe that the Company continues to have tremendous potential for growth and that we have an exciting future ahead of us," said Frank Blake. "The Board and I are committed to continuing on our current strategic path and remain focused on enhancing performance and delivering value for customers, shareholders and associates."
The Board also announced that Carol Tome, the Company's current executive vice president and CFO, and Joe DeAngelo, the Company's executive vice president, HD Supply, will be assuming additional responsibilities. Tome will be assuming responsibility for mergers and acquisitions, credit services and additional strategic responsibilities. DeAngelo was appointed to the newly created position of Chief Operating Officer. In this position, DeAngelo will continue to oversee HD Supply and will assume additional responsibilities for the retail business.
"I am extremely proud of what we have accomplished at The Home Depot since 2000 and I believe that I leave a stronger and more resilient company than when I arrived, and one that is well positioned to capitalize on the substantial opportunities ahead of it," said Nardelli. "I've worked closely with Frank, Joe and Carol and have the utmost confidence in their abilities. I have also been lucky to work with a very talented and dedicated management team, which will support Frank, Carol and Joe in the next phase of The Home Depot's strategy. I wish The Home Depot and all of its associates continued success in the future."
With the appointments of Blake, DeAngelo and Tome, the Board of Directors expressed its confidence in the Company's current business model, long-term strategy and future growth potential.
Nardelli and the Company have agreed in principle to the terms of a separation agreement which would provide for payment of the amounts he is entitled to receive under his pre-existing employment contract entered into in 2000. Under this agreement, Nardelli will receive consideration currently valued at approximately $210 million (including amounts which have previously been earned or vested). This consideration will include a cash severance payment of $20 million, the acceleration of unvested deferred stock awards currently valued at approximately $77 million and unvested options with an intrinsic value of approximately $7 million, the payment of earned bonuses and long-term incentive awards of approximately $9 million, the payment of account balances under the Company's 401(k) plan and other benefit programs currently valued at approximately $2 million, the payment of previously earned and vested deferred shares with an approximate value of $44 million, the payment of the present value of retirement benefits currently valued at approximately $32 million and the payment of $18 million for other entitlements under his contract which will be paid over a four year period and will be forfeited if he does not honor his contractual obligations.
Nardelli has also agreed not to compete with the Company for one year, not to solicit employees or customers of the Company for four years and other restrictive covenants. In conjunction with the management changes, the Board of Directors also announced that it had waived the retirement age of 72 and has asked John L. Clendenin, Claudio X. Gonzales and Milledge A. Hart III to stand for re- election at the 2007 annual shareholders meeting. This action was taken to retain these directors' experience, and deep knowledge of the Company's business and key personnel to help ensure a smooth management transition. This action is temporary and effective for one year.
About The Home Depot
The Home Depot is the world's largest home improvement specialty retailer, with 2,127 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexico and China. Through its HD Supply(SM) businesses, The Home Depot is also one of the largest diversified wholesale distributors in the United States, with nearly 1,000 locations in the United States and Canada offering products and services for building, improving and maintaining homes, businesses and municipal infrastructures. In fiscal 2005, The Home Depot had sales of $81.5 billion and earnings of $5.8 billion. The Company employs approximately 355,000 associates and has been recognized by FORTUNE magazine as the No. 1 Most Admired Specialty Retailer and the No. 13 Most Admired Corporation in America for 2006. The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index. HDG
Forward Looking Statements
Certain statements contained herein may be "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on currently available information as of their dates and are subject to risks and uncertainties that may cause actual results to differ materially from the statements and other information contained herein, including risks and uncertainties associated with the effects of the changes in management personnel.
Additional information regarding risks and uncertainties is contained in the Company's periodic filings with the Securities and Exchange Commission, including the Company's most recently filed Annual Report on Form 10-K. Forward-looking statements speak only as of their respective dates, and the Company specifically disclaims any obligation to update them except as may be required under the federal securities laws.
(Source: The Home Depot)
Investor group seeks coup at Home Depot
A prominent shareholder activist group is seeking a shake-up at Home Depot. Relational Investors LLC, known for stirring up boardroom battles at Sovereign Bancorp, Mattel and Waste Management, recently notified Home Depot that it plans to push the company's directors to study "strategic alternatives" for the Atlanta-based retailer, including a restructuring or possible sale.
Read Relational Investors letter and notice of shareholder proposal, plus Home Depot's response, here
The group's emergence sets the stage for a likely showdown next May at Home Depot's annual shareholder meeting, where San Diego-based Relational Investors will try to garner enough shareholder support to win seats on Home Depot's board.
Home Depot disclosed the move Monday, saying it would oppose the resolution and solicitation of shareholders but would agree to meet with Relational Investors early next year. In a press release, the company said its board of directors "unanimously supports the management team" and current strategy of Chairman and CEO Bob Nardelli. Relational Investors owns 13 million shares, or less than 1 percent of Home Depot's stock. Still, it carries a big stick as corporate rabble-rousers go.
Ralph Whitworth, the firm's co-founder, has made a career of trying to influence the companies he invests in, working his way onto several of their boards in the process. After buying a chunk of a publicly held company — frequently, an ailing one — Relational Investors typically voices its concerns through a well-orchestrated public relations campaign.
On that front, Home Depot could face a fresh round of crossfires.
Home Depot has produced revenue growth and strong profits in recent years, but it has had lackluster stock performance. The fact that the share price is down about 6 percent during Nardelli's six-year reign has spurred criticism.
There also has been an outcry about Nardelli's roughly $30 million pay package, which significantly exceeds those of peers at other big retailers.
This year's truncated annual meeting fanned the flames when Nardelli, the only board member in attendance, declined to answer questions from shareholders.
Citing Home Depot's "chronic inferior stock," Relational Investors told Home Depot that it seeks to nominate one or more independent directors for a shareholder vote at the next meeting, and that it also wants a committee of independent directors to evaluate Nardelli. "We attribute [the stock] performance to deficient strategy, operations, capital allocation and governance," Whitworth said in a letter to Home Depot last week.
Home Depot said in its statement Monday that its directors recently completed a "strategic review," and that Nardelli continues to have full support from the board. The company also ticked off a list of accomplishments during Nardelli's tenure, including large increases in sales and earnings per share, and $20 billion worth of stock buybacks and dividends.
Whitworth said in an interview Monday that he would support Nardelli, too, if he agreed to change his blueprint for Home Depot.
"Management changes are rife with peril. We do not prescribe that as a first choice," he said. "We're focused on bringing fresh, independent perspective to the boardroom." Whitworth wants Nardelli to ditch the new wholesale supply business and focus completely on the core retail business instead.
Home Depot's recent push into industrial distribution has added roughly $12 billion in revenue this year, at a time when retail sales are slowing. Whitworth criticized the wholesale venture, though, as a lower-return, more cyclical business.
Relational Investors, which manages about $6.5 billion in investments, is prepared to mount a fight if it is not satisfied with its dealings with Home Depot, Whitworth said. The firm is recently known for its role in taking out Sovereign Bancorp CEO Jay Sidhu, who resigned in October following a drawn-out battle with Relational that was marked by lawsuits, critical full-page newspaper ads and a fervent telemarketing campaign.
"They're the real deal," said Reid Pearson, managing director of the Altman Group, a proxy solicitation firm. "It's certainly something that Home Depot has to take seriously." Nardelli has met frequently with large shareholders this year in an effort to boost support for his retail-wholesale strategy. The company's annual investor conference at Home Depot headquarters is scheduled for February.
At least one investor defended Home Depot on Monday.
"Home Depot is not a sick company," said Marvin Roffman of Philadelphia's Roffman Miller Associates, which owns Home Depot shares. "The slowdown in the economy is really affecting a lot of retailers. I don't see anything wrong with management or the company."
Still, there's always room for improvement, notes money manager Patricia Edwards at Wentworth, Hauser & Violich, another Home Depot shareholder.
"There is a lot of value in this company that has not been unlocked," Edwards said. "Sometimes you need to take management out and knock a little sense into them."
(Source: Patti Bond, Atlanta Journal-Constitution. Bloomberg News contributed to this article.)
Nardelli Resigns As CEO of Home Depot
By Harry R. Weber, AP Business Writer
Atlanta, Jan. 3, 2007 — Dogged by criticism of his hefty pay and his company's poor stock performance, Bob Nardelli abruptly resigned Wednesday as chairman and chief executive of The Home Depot Inc. after six years at the helm of the world's largest home improvement store chain.
But he didn't leave empty-handed: the Atlanta-based company said Nardelli would receive a severance package worth roughly $210 million, an amount decried by some lawmakers as a golden parachute that sends the wrong message to investors.
"It's a sign of being totally out of touch," said Rep. Barney Frank, D-Mass., the incoming chairman of the House Financial Services Committee. "They don't understand the extent to which they make the American public angry." Frank said he would push for legislation requiring public companies to allow shareholders to have a say in compensation and severance for senior executives. At Home Depot's annual meeting last May, shareholder proposals to give investors a say on the CEO's pay and to restrict retirement benefits for senior executives were rejected.
Nardelli's severance package includes a cash payment of $20 million and the acceleration of unvested deferred stock awards currently valued at roughly $77 million. A Home Depot spokesman said the timing of the resignation had no bearing on the amount in the package.
The total package is seven times the $30 million Home Depot set aside last June for stores and employees that provide good customer service. Home Depot has 2,127 stores and 355,000 employees in the United States, Canada, Mexico and China.
Nardelli, a former college football player, became CEO of Home Depot in December 2000 after being passed over for the top job at General Electric Co., where Nardelli had been a senior executive.
Home Depot said Nardelli was being replaced by Frank Blake, its vice chairman, effective immediately.
Blake's appointment is permanent, Home Depot spokesman Jerry Shields said. What he will be paid was not immediately disclosed, Shields said. The company declined to make Blake available for comment, and messages left for Nardelli with his secretary and on his wife's cell phone were not immediately returned. Home Depot shares rose $1.33, or 3.3 percent, to $41.49 in afternoon trading on the New York Stock Exchange, near the upper end of their 52-week range of $32.85 to $43.95. Before Wednesday's news, Home Depot's stock had been down more than 3 percent on a split-adjusted basis since Nardelli took over.
Nardelli's sudden departure was stunning in that he told The Associated Press as recently as Sept. 1 that he had no intention of leaving, and a key director said that the board was pleased with Nardelli despite the uproar by some investors. That director, Bonnie Hill, did not immediately return messages left Wednesday for her at her office in Los Angeles.
Asked in the earlier AP interview if he had thought of hanging up his orange apron and leaving Home Depot, Nardelli said unequivocally that he hadn't. Asked what he thought he would be doing 10 years from now, Nardelli said, "Selling hammers."
For The Home Depot? "Absolutely," he said at the time. Home Depot said Nardelli's decision to resign was by mutual agreement with Home Depot. "We are very grateful to Bob for his strong leadership of The Home Depot over the past six years," Home Depot's board said in a statement.
Nardelli was a nuts-and-bolts leader. He helped increase revenue and profits at Home Depot and increase the number of stores the company operates. Home Depot's earnings per share have increased by approximately 150 percent over the last five years. But the public discussion about his pay and the company's stock price became a distraction.
Industry experts and analysts said his departure and Blake's ascent to the top job are a good thing for Home Depot.
"This is not about strategy or vision," said James Senn, director of Robinson College's Center for Global Business Leadership at Georgia State University. "This is coming down to two things. Really the foundation of leadership is credibility. Bob has run into some problems there. The second is execution."
Edward Jones analyst Stephanie Hoff said she views the developments at Home Depot as a sign that there was a need for change at the top, not a change in the company's strategy.
"I think his gruff demeanor, while some people would consider that refreshing, sometimes hurt him," Hoff said, adding that Blake is considered by some as more articulate and polished.
She added, "I think the board basically was looking at this situation and figured Nardelli had become such a lightning rod for criticism of his pay package."
The Home Depot board also announced Wednesday that Carol Tome, its chief financial officer, and Joe DeAngelo, its executive vice president for Home Depot Supply, will be assuming additional responsibilities.
Tome will be assuming responsibility for mergers and acquisitions, credit services and additional strategic responsibilities. DeAngelo was appointed to the newly created position of chief operating officer.
Besides the cash payment and the acceleration of unvested deferred stock awards, Nardelli's severance package includes payments of earned bonuses and long-term incentive awards, account balances under the company's 401(k) plan and other benefit programs and certain retirement benefits.
Nardelli has also agreed not to compete with the company for one year, and not to solicit employees or customers of the company for four years.
Home Depot did not say what Nardelli would be doing next.
In conjunction with the management changes, the board also announced that it had waived the retirement age of 72 and has asked John L. Clendenin, Claudio X. Gonzales and Milledge A. Hart III to stand for re-election at the 2007 annual shareholders meeting. This action was taken to retain these directors' experience. Home Depot said the action was temporary.