Fitch Places Stanley Works on Watch Negative; Black & Decker on Watch Positive on Merger

NEW YORK, Nov 03, 2009 (BUSINESS WIRE) -- Fitch Ratings has placed the ratings of The Stanley Works (SWK) on Rating Watch Negative. Fitch has also placed the ratings of The Black & Decker Corporation (BDK) and Black & Decker Holdings LLC on Rating Watch Positive.

The rating actions follow SWK's announcement of a definitive merger agreement with BDK. The all-stock transaction will create a combined company valued at approximately $4.5 billion. Reflecting a high likelihood of completion of the merger, Fitch has lowered SWK's short-term Issuer Default Rating (IDR) and commercial paper rating to 'F2' from 'F1'.

Fitch ratings for SWK are: --IDR 'A'; --Revolving bank facility 'A'; --Senior unsecured notes 'A'; --Junior subordinated notes 'A-'.

Fitch ratings for BDK are: --IDR 'BBB'; --Short-Term IDR 'F2'; --Commercial paper 'F2'; --Revolving credit facilities 'BBB'; --Bank term loan 'BBB'; --Senior unsecured notes 'BBB'.

Fitch also rates Black & Decker Holdings LLC's (BDH) IDR and senior unsecured notes 'BBB'.

Approximately $1.5 billion of SWK's debt and $1.7 billion of BDK's debt is covered by these actions.

Upon completion of the transaction, which is anticipated in the first half of 2010, Fitch expects to rate the combined entity's long-term IDR 'A-', its Bank Facility and senior debt 'A-', and its junior subordinated debt 'BBB+'.

The combined company's business risk will increase as more revenues are dependent on cyclical industries and recurring security revenue becomes a smaller percentage of combined revenues. Both companies are cyclical, but BDK, having a good correlation to residential housing (primarily repair/remodeling) markets and the consumer sector, tends to come out of recessions earlier than SWK's more industrial/commercial focus. BDK's revenues and, in particular, its margins have tended to bounce back relatively quickly after recessions. In Fitch's view, the economy appears to be stabilizing, which should lead to improvement in margins on volume growth in BDK's businesses.

Fitch also notes that there is integration risk but that SWK has demonstrated it can integrate acquisitions efficiently, having completed 56 of them since 2002 at a cost of $2.8 billion. While none were as big as BDK, both companies are in similar lines of business and are already knowledgeable about the go-to-market strategy on the CDIY (construction and do-it-yourself) side, which should help to minimize integration risk.

It is expected that management of the merged company will remain prudent regarding its financial policies. On a combined basis, at year-end 2009, EBITDA/interest is forecasted at 5.6 times (x) and total debt with equity credit/EBITDA at 2.8x, both weaker than an 'A-' rating. Nevertheless, expectations are for leverage to decline quickly over the next two years as debt is repaid. Fitch expects total debt with equity credit/EBITDA and EBITDA/interest to strengthen to the 2.0x and 8.0x levels, respectively, within two years. The combined company is expected to generate solid free cash flow once transaction and restructuring costs are absorbed, to have available cash balances near $1 billion, and increase available credit to at least $1.3 billion. Debt totaling $517 million in 2010, which includes debt maturing in 2010 and debt subject to change of control provisions, is expected to be primarily repaid with any remainder refinanced.

The new company will: --Have significant brand equity, --Be a global leader in tools, --Have a strong portfolio of businesses, --Possess an extensive global footprint with strengths in emerging markets, --Have world class new product development --Use low cost country manufacturing and sourcing.

The new company will also become an important supplier to retailers for both hand and power tools, provide considerable operating leverage, and generate significant free cash flow. For 2009, the combined company should generate more than $8 billion in revenues, have EBITDA near $1 billion, and operating margins close to 8%. These numbers do not include over $350 million of cost synergies already identified to occur over the next three years. Revenue growth synergies are anticipated and the ability to expand operating margins should enhance future cash flow.

SWK markets hand tools, consumer mechanics tools, storage units, pneumatic tools and fasteners, and measuring tools in its Construction and DIY segment under such well-known brands as Stanley(r), FatMax(r), FatMax(r) Xtreme(tm), FatMax(r)XL(tm), Bostitch(r), as well as under certain retailers' private label brands. Professional mechanics tools, storage systems, plumbing, heating, air conditioning, specialty and assembly tools as well as assembly systems in its Industrial Segment are marketed under brands that include Stanley(r), Proto(r), Facom(r), MAC(r), Vidmar(r), and Blackhawk(tm) by Proto(r) brands. Access and security solutions, including mechanical and electronic security products and systems and services as well as security monitoring systems are sold under the Stanley(r), Blick(r), Frisco Bay(r), PAC(r), ISR(tm), WanderGuard(r), HSM(r), and Sonitrol (r) brands.

BDK, a leading global producer of power tools, power tool accessories, and residential security hardware, markets these products under such well-known brands as Black & Decker, DeWalt, Porter-Cable, Kwikset, and Baldwin. The company is also a major global supplier of engineered fastening and assembly systems (Emhart Teknologies) and a leading producer of faucets (Price Pfister)in North America.

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SOURCE: Fitch Ratings CONTACT: Fitch Ratings, New York Thomas P. Razukas, CFA, [phone] Grace Barnett, CPA, [phone] Media Relations: Cindy Stoller, [phone] [e-mail] Copyright Business Wire 2009 -0- KEYWORD: United States

North America

New York INDUSTRY KEYWORD: Professional Services

Finance SUBJECT CODE: Bond/Stock Rating