The companies said the driving motivation of the deal is the $350 million in annualized cost savings as well as the improved finances of the more diversified company.
Our lines complement each other, Black & Decker Chief Executive Nolan Archibald said in an interview. From a product point of view and a geographic point of view we have an opportunity of putting these two organizations together and coming up with significant cost savings.
Black & Decker shareholders will receive 1.275 Stanley shares -- about $57.56 at Monday's close -- for each Black & Decker share they own, representing a premium of 22 percent over Black & Decker's Monday close of $47.34. Stanley shareholders will own about 50.5 percent of the combined company, with Black & Decker shareholders owning the rest.
Stanley Chief Executive Officer John Lundgren said that cost savings would come from business unit and regional consolidation, corporate overhead cuts, and changes to manufacturing, distribution and purchasing practices.
He said job cuts would be modest.
Certainly it will be less than ten percent -- this is nothing draconian, Lundgren said in an interview.
The CEOs said they do not expect antitrust problems. While the two companies are both top tool makers, Black & Decker is focused on power tools while Stanley Works is a top hand tool maker.
Shares of Black & Decker, whose brands include its namesake line, DeWalt, Kwikset and Price Pfister, gained 18 percent in after-hours trading, while Stanley Works rose 4.1 percent. Stanley Works brands include the Stanley line, Bostitch, Proto, and Mac Tools.
WELL-POSITIONED AHEAD OF RECOVERY
Brian Sozzi, an analyst at Wall Street Strategies, said the deal makes strong sense.
A deal would help them get positioned ahead of the recovery in housing and the ultimate rebound in commodities, Sozzi said.
The deal is expected to add about $1 per share to the earnings of the combined company, Stanley Black & Decker, by the third year after closing.
The companies also expect about $1 billion in free cash flow from the combined businesses by the end of the third year.
With a billion dollars in cash flow, our combined business development team and a very full acquisition pipeline gives us the opportunity to continue to build the growth platforms that are out there, Lundgren said.
He said growth areas include security, engineered fastening, infrastructure and health care.
James Lucas, an analyst at Janney Montgomery Scott, said that Stanley has recently developed into a much stronger operating company than in years past and that expertise could create value at the Black & Decker brands as the companies move forward.
Stanley Works' Lundgren will be CEO of the combined company, while Black & Decker's Archibald will be chairman for three years.
Deutsche Bank and Goldman Sachs & Co. acted as Stanley`s financial advisors and JP Morgan advised Black & Decker.
(Editing by Anil D'Silva, Leslie Gevirtz, Gunna Dickson and Carol Bishopric)