Ergers and Acquisitions Analysis for Stanley Works, Inc and Black & Decker Corporation

Mergers and Acquisitions Analysis for Stanley Works, Inc and Black & Decker Corporation

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International Class 3 - Group C:

Aslam Akbany

Dian Hapsari

Elmonica Simanjuntak

I Nyoman Widyarga E.

Mergers and Acquisitions Analysis Stanley Works, Inc and Black & Decker Corporation

The Stanley Works, Inc, a worldwide supplier of quality tools and engineered solutions for industrial, construction and do-it-yourself use, and security solutions for commercial applications, and The Black & Decker Corporation, a global manufacturer and marketer of quality power tools and accessories, hardware and home improvement products, and technology-based fastening systems

On November 2, 2009, the boards of directors of The Stanley Works, Inc. and Black & Decker Corp. agreed to a merger in which The Stanley Works would combine with Black & Decker through an exchange of stock giving Black & Decker’s shareholders a 21.6% premium. Stanley would pay $3.6 billion in its stock (valued at Stanley’s pre-announcement price of $45.23/share) for all of Black & Decker’s stock. The merger would leave Stanley shareholders with 50.5% of the stock in the combined enterprise. Black & Decker shareholders would receive 49.5% of the stock of the combined enterprise. John F. Lundgren, age 57, the CEO of Stanley since 2004 would become CEO of the combined company while Nolan Archibald, age 66, and CEO of Black & Decker since 1986 would become executive chairman of the combined company.

Background

The Stanley Works was a hand tool company founded in 1843 and headquartered in New Britain, Connecticut. Black & Decker was a power tool company established in 1910 and headquartered in Towson, Maryland. Since the companies operated in similar lines of business, they had periodically discussed a strategic combination. Merger discussions had occurred in the early 1980s, the late 1980s and again in the early 1990s. These talks “typically stalled over who would be in charge.”

The Transaction Economics

Cost savings associated with the combination were a strong motivating factor in the proposed merger. The combined company was expected to save $350 million annually. The transaction was “... expected to result in nearly 4,000 layoffs from a global workforce of 38,000.”2 This level of savings would be achieved over three years at a cumulative one-time restructuring cost of $400 million (Exhibit 1). Stanley’s GAAP earnings per share (once the full savings were realized at the end of year three) were expected to reach $5.00, an increase of $1.00 per share versus the EPS projection of Stanley without the merger.

Question:

1. What is the incremental value to shareholders of the cost savings (synergies) projected in this merger? How will the value of the synergies be shared in the proposed transaction?

1. After failing to complete a merger following the three prior attempts noted in the case, why should the proposed transaction be successful this time?

• Combining the both brand that already recognized worldwide will give additional brand equity and will create appeal among supplier of choice for tools such as retailers and commercial customers (B2B) and individual consumers (B2C).
• With the combine from both company will benefit from efficiency (cost and benefit synergy) in their tools business and lead to higher margin and revenue generated.
• Both of product Stanley and Black & Decker is no overlapping so it will diversified the product and business line worldwide.
• Black & Decker CEO has become CEO almost 24 years and 66 years old, he closed to retired date. Merger and acquisition will benefit him for the compensation he received before the retirement.
• Black & Decker have a close competition with Makita Corps (Japanese Power Tools Company) and will benefit for the merger that Black & Decker will have higher advantages for the increase in financing power and market share.
• Sales Revenue Synergies -  No Cannibalizing of sales as products not overlapping and booth companies have competitive advantage in their own product. Also more power merger in distribution and negotiation with retailers. A revenue synergy is when, as a result of an merger  the combined company is able to generate more sales than the two companies would be able to separately
• Branding, superior brand image post merger. Mergers present an opportunity to shake up the market. The most successful will create a fresh proposition that doesn’t just bind the heritage of the partners but lifts them in a new common purpose but we have to beware the risks of compromise.
• Extreme competition in the tools market from lower cost suppliers (mentioned about Makita Corps). The competition shifts from the overall package to the specific cost and performance characteristics of each component individually. This general principle implies that if one firm has a distinctly superior overall package. If each firm has a distinctly superior component, both firms may prefer compatibility and may spend resources to achieve it.

1. How much of the incremental value created in this transaction will go to the CEO's of the two firms involved?

1. How do you think the leadership team at Black & Decker (other than CEO) will view this transaction? how about the governor of maryland (Black & Decker's headquarters state)

For other Black & Decker executive they will be insecured for their job. However, they will received the compensation such as 3 years pay of severance, 3 years benefits, gross-up of the income tax with total of $92.3 million, other long term incentive plan amount to 13.2 million and stock option with total $41.7 million and lastly for senior employee will received retirement plan amounted to $22.7 million.

There are two thing will be concern from governor of Maryland, the first one is when Company merger usually they will move headquarter to the place where the major shareholder control that particular Company. For this cases, headquarter for power tools remain in Towson (Maryland). The other concern is related to cost synergy, for cost synergy the Company will lay off their employee and will lead to increase in the unemployment rate in that state.