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.