Stanley Works Acquires B&D

Stanley Works (SWK - Analyst Report) and Black & Decker Corporation (BDK) have entered into a definitive merger agreement to create Stanley Black & Decker, an $8.4 billion global tool maker. The Board of Directors of both companies approved an all-stock transaction valued at approximately $4.5 billion.

Under the terms of the deal, Black & Decker shareholders will receive 1.275 Stanley shares for each Black & Decker share they own. The deal is expected to close in the first half of 2010. Upon the completion of the transaction, Stanley shareholders will own 50.5% of the combined company, while Black & Decker shareholders will own the remaining 49.5%.

John F. Lundgren, Chairman and Chief Executive Officer of Stanley, will be President and Chief Executive Officer of the combined company, while Nolan D. Archibald, Chairman, President and Chief Executive Officer of Black & Decker, will be Executive Chairman for three years. The combined company’s board will include nine members of the current Stanley Board of Directors along with six members from Black & Decker’s Board of Directors.

The companies have complementary products. While Stanley is a supplier of quality tools and engineered solutions for industrial, construction and do-it-yourself use, and security solutions for commercial applications, Black & Decker manufactures quality power tools and accessories, hardware and home improvement products, and technology-based fastening systems. The combined company will have a comprehensive offering across all major tool categories.

The companies anticipate significant cost synergies, operating margin expansion and enhanced growth opportunities through this transaction. The combination is expected to be accretive to earnings by approximately $1.00 per share by the third year after closing. This includes approximately $350 million in estimated annual cost synergies fully realized within three years. The cost synergies are expected to be derived from reductions in corporate overhead, business unit and regional consolidation, manufacturing and distribution, and purchasing.

Also, the combined company is expected to generate approximately $1.0 billion in free cash flow annually by the third year after closing, through significant improvements in working capital and asset efficiency.

Both companies have recently suffered due to a drastic slowdown in construction markets and subsequent weakness in equipment demand. Now, with greater scale and efficiencies in its tool business, a highly diversified revenue base across geographies and business lines, and its strong financial position, the combined company will be in a better position to capitalize on market recovery.

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