While beneficial, Black & Decker deal leaves region smarting 

Posted: 7:49 pm Tue, November 3, 2009
By Danielle Ulman
Daily Record Business Writer

The deal between Black & Decker Corp. and The Stanley Works will benefit the companies and shareholders, but leaves the Baltimore region smarting from the loss of one of its best-known companies.

Towson-based power tool giant Black & Decker said Tuesday that it decided to enter into the $4.5 billion all-stock merger with Stanley, developer of hand tools and security devices, on a bet that the companies could save more together than apart, and Wall Street agreed. In Maryland, where Black & Decker has been a major presence for nearly a century, members of the business community recognized that the deal hinged on the global economy, not on the state’s business environment, but said the loss is a wake-up call.

“I think it’s an important lesson to be learned in Maryland that we do have global competition,” said Kathleen Snyder, president and CEO of the Maryland Chamber of Commerce.

“It’s a message that the chamber continues to take to the General Assembly — we’re not just competing against companies in Maryland, we’re competing globally,” she said. “This is not a time to be over-regulating businesses or adding costs to businesses.

“That was not the reason for this merger,” Snyder said. “This merger seems to be one of economic survival. But it is a lesson learned that we are in a global marketplace.”

Both companies have made significant cost cuts over the past few years, and in a conference call with investors Tuesday, Black & Decker CEO Nolan D. Archibald said making any additional cuts separately would have cut the companies to the “bone” and impaired growth when the economy recovers.

“That’s why this thing was so attractive … [it] gave us the opportunity to cut costs,” Archibald said. “With no increase in sales, we’re going to have substantial cost benefits.”

The companies will streamline costs, saving about $350 million annually, by reducing corporate overhead through layoffs and combining corporate headquarters in New Britain, Conn., where Stanley is based. Archibald will be executive chairman of the newly formed Stanley Black & Decker, and Stanley’s CEO, John Lundgren will be its president and chief executive.

Under his contract with Black & Decker, Archibald had a change in control provision that would have netted him a $20.5 million severance payment if he was terminated or quit with good reason. Archibald waived that right with the merger agreement, according to a filing Tuesday with the Securities and Exchange Commission.

Archibald will make a base salary of $1.5 million and is eligible for a bonus of up to $1.88 million if the company meets its target goals, similar to his 2008 salary and bonus.

Five executives at Black & Decker, including Archibald, took 10 percent pay cuts in 2009, but according to the filing, their base salaries have been restored.

About 10 percent of the work force at both companies — Black & Decker employs about 20,000 people and Stanley has 18,000 employees — will likely lose their jobs. Black & Decker employs about 1,500 people in Maryland, including an unspecified number in a manufacturing plant in Hampstead.

Although the power tools division will remain headquartered in Towson, Roger Young, a spokesman for Black & Decker, said that most of the 250 corporate jobs located in Maryland will not be maintained. Those working in the patents division will probably get folded into the power tools division.

“For the 250 that are involved it’s a great, great loss and we’ll do anything we can to support them,” said David Iannucci, executive director of the Baltimore County Department of Economic Development.

“The county executive and I will fly to Connecticut if necessary to convince those folks to keep as many jobs as possible here,” he said.

Still, Iannucci said the county can absorb the loss.

“In the scheme of things, 250 jobs have to be put in context of 375,000 jobs” in the county, he said.

The companies’ announcement of the deal Monday sent share prices flying in overnight trading.

Both companies saw substantial gains Tuesday after explaining why the iconic toolmakers decided to join together. Shares of Black & Decker’s stock gained $14.66, or nearly 31 percent, to close at $62, while the price of Stanley’s shares climbed $4.54, or 10.06 percent, to $49.69.

“For Stanley Works, the reason they were up [Tuesday] is one, they got a pretty good deal, and two, investors might be thinking there are sunnier times ahead,” said Anthony Dayrit, an analyst with Morningstar Inc. in Chicago.

Black & Decker’s shareholders will get 1.275 shares of Stanley’s common stock for each share of Black & Decker they own. At Tuesday’s closing prices, the deal values Black & Decker’s shares at $59.53.