Stanley sees cost savings in Black & Decker deal

CHICAGO - Tool makers Stanley Works and Black & Decker Corp. are betting that together they can wring out more profit and better position themselves for a housing market recovery than they could apart.

In an all-stock deal that would create the largest tool maker in a fragmented market, Stanley Works on Monday agreed to pay $3.46 billion for rival Black & Decker.

The deal will cut costs by $350 million within three years, likely in part through an unspecified number of job cuts, and increase earnings per share by $1 within three years, the companies said. Executives said most of the savings will come from reducing corporate overhead and consolidating business units.

There is little overlap in the companies' products, said James C. Lucas, managing director of Janney Montgomery Scott LLC. Stanley is a leader in consumer and industrial hand tools and security, and Black & Decker in power tools.

While the companies haven't seen a sharp rebound in business, there have been signs that demand is stabilizing. That might be why both companies decided to combine now, said Morningstar analyst Anthony Dayrit.

"I feel like both companies think there will be sunnier skies ahead," Dayrit said.

Dayrit also said that Black & Decker, which has a residential security business offering products such as door locks, may have been enticed by Stanley Works' lucrative security business that targets commercial customers, such as schools and hospitals. During the third quarter, Stanley's security business was the only one of its three units to post an increase in profit, by 13 percent.

As a combined company, there might be some opportunity to raise prices.

"I think that there might be some pricing power there, but both Home Depot and Lowe's have substantial power over suppliers," Dayrit said.

Stanley's brands include its Stanley tools line and FatMax, Bostitch and Mac Tools, which are used on cars. In addition to its namesake line, Black & Decker owns DeWalt, Porter-Cable, Kwikset and Baldwin brands, popular with consumers and professionals. Black & Decker also manufactures some Sears Craftsman products, such as air compressors, though that's a small part of its business.

Stanley Chairman John F. Lundgren will be president and CEO of the new company. Black & Decker Chairman, President and CEO Nolan D. Archibald will serve as executive chairman for three years.

Archibald told analysts Tuesday that the deal wasn't driven by the recession. "Both companies had a very bright future on a stand-alone basis," he said.

Black & Decker's stock price has more than doubled from a yearly low of $20.35, while shares of Stanley Works have also risen 98 percent from a 52-week low of $22.75. Both lows were hit March 9.

The deal began six months ago when Lundgren invited Archibald to lunch to discuss a deal, Black & Decker's CEO said. The executives met again in June, he said.

"This is a romance that started approximately 28 years ago," Archibald said. Three times in that span, Stanley and Black & Decker executives discussed a combination, he said.

Black & Decker, based in Towson, Md., has 22,100 workers. Stanley Works, based in New Britain, Conn., has 18,200 workers. The new Stanley Black & Decker will retain headquarters in Connecticut, while its power tool division will remain headquartered in Maryland.

Black & Decker shareholders will receive stock valued at $57.57 for each share held, representing a 22 percent premium to Black & Decker shares' closing price. Based on the company's 60.2 million shares outstanding July 24, the deal is worth $3.46 billion.

Stanley shareholders will own about 50.5 percent of the combined company, while Black & Decker shareholders will hold the rest.

Each company's board of directors has signed off on the deal, but it still needs regulatory and shareholder approval. It's expected to close in the first half of 2010.

Black & Decker shares climbed $14.66, or 31 percent, to $62 Tuesday. Stanley Works shares rose $4.54, or 10.1 percent, to $49.69.

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Associated Press Writer Kasey Jones in Baltimore, Md., and AP Business Writers Stephen Singer in Hartford, Conn., and Betsy Vereckey in Chicago contributed to this report.

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