Home Depot CEO resigns

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CHICAGO – Home Depot Inc. stunned investors Wednesday when it said that embattled Chairman and Chief Executive Robert Nardelli resigned, effective immediately, and was replaced with Vice Chairman Frank Blake.

That sent shares of Home Depot, a Dow Jones Industrials component, higher by more than 4 percent in unusually heavy trading.

The departure – described as “mutually agreed” to – came with a hefty severance package of $210 million for Nardelli.

The resignation also ends a stormy six-year tenure in which Nardelli, often described as autocratic, made great strides to shore up the retailer’s balance sheet and growth prospects but alienated a number of executives and sales associates as well as shareholders in the process.

“We have mixed feelings about his tenure at Home Depot,” Merrill Lynch analyst Danielle Fox said in a research note. “He accomplished much of what he was brought in to do but was divisive.”

Indeed, Nardelli himself has dominated the headlines about Home Depot. Particularly since last spring, Nardelli’s management style and rich pay package have been main points of contention.

“The thing I’ve been worried about the most at Home Depot was that Bob Nardelli was such a driven CEO,” said Raymond James analyst Budd Bugatch, who ahead of the news Wednesday upgraded Home Depot share to a strong buy from outperform. “That’s a good thing, in most cases, but sometimes you go overboard. Bob probably did – he was so driven that he essentially wore people out.”

Nardelli’s resignation and severance package even drew attention in Washington on Wednesday when Incoming House Financial Services Committee Chairman Barney Frank, D-Mass., said it was more evidence that lawmakers should deal with CEO pay.

The pattern of CEO pay “appears to be out of control,” Frank said in a statement. Frank has tapped CEO pay and wage inequality as priorities during his term as chairman of the financial panel.

Nardelli also further fueled shareholder dissonance when he, alone, presided over Home Depot’s annual meeting last May. In a terse meeting held in Wilmington, Del., Nardelli refused to review the company’s performance and placed strict time limits on shareholders’ questions, which he also would not answer.

In recent months, Nardelli has reversed some decisions and apologized publicly for what he considered mistakes.

“We are very grateful to Bob for his strong leadership of the Home Depot over the past six years,” the company said in a statement. The company said that Nardelli spearheaded “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 company, which is the world’s largest home-improvement chain, has been working to retain its market share as it battles with rival Lowe’s Cos. It has introduced higher-end merchandise and new private-label products in its stores while offering installation services and bolstering its supply business. Builders and contractors, a key revenue source for Home Depot, have also warned of a steeper-than-expected housing pullback.

In October, the company realigned its retail leadership, eliminating a layer of management between Nardelli and his division presidents, in a move that gave Nardelli more control over operations. At that time, the company also reaffirmed its support of the Nardelli.

Last month, activist Home Depot shareholder Relational Investors LLC said it wanted the retailer to establish a special committee to review the company’s strategic direction, management performance and to explore possible alternatives, including a sale of the company. Home Depot rejected the proposals and said at the time that its board had recently completed a strategic review and unanimously supported the company’s management.

Under the terms of his separation agreement, Nardelli is on line to get a pay and stock package worth about $210 million that the company said includes amounts that already were earned or vested.

The package, which includes a cash severance payment of $20 million, steps up deferred stock awards valued at about $77 million and options with an intrinsic value of about $7 million; the payment of earned bonuses and long-term incentive awards of about $9 million; the payment of account balances under the company’s 401(k) plan and other benefit programs currently valued at roughly $2 million; the payment of previously earned and vested deferred shares with a value of about $44 million; the payment of the present value of retirement benefits currently valued at about $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 Nardelli does not honor contractual obligations.

In addition, Nardelli agreed not to compete with the company for one year, to not to solicit employees or customers of the company for four years and to abide by other restrictive covenants.

The board also said Carol Tome, currently executive vice president and chief financial officer, and Joe DeAngelo, executive vice president of HD Supply, will be assuming additional responsibilities.

Tome is to take 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 is to continue to oversee the supply division and assume additional responsibilities for the retail business.

In conjunction with the management changes, the board waived the retirement age of 72 and has asked John Clendenin, Claudio Gonzales and Milledge Hart III to stand for re-election at the 2007 shareholders meeting. This rule suspension is effective for one year.



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AP-NY-01-03-07 1840EST

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