TOOL TITANS TO JOIN

THE BALTIMORE SUN

Black & Decker Corp., the Towson-based toolmaker founded here almost 100 years ago, said Monday that it plans to merge with The Stanley Works in a $4.5 billion all-stock deal that will bring together internationally known brands but reduce the number of local jobs.

For the Baltimore region, it is another in a long line of deals relocating corporate headquarters - and the decision-making power, charitable muscle and prestige they represent. Stanley would have controlling interest in the combined company, which would be named Stanley Black & Decker and headquartered in New Britain, Conn., where Stanley is located. The power tools division would remain in Towson.

Black & Decker spokesman Roger Young said there were about 1,500 workers in Maryland, mainly in the power tools division. Fewer than 250 work in corporate jobs - most of whom "will not likely be maintained," he said.

"This is pretty bad news for the state and the region," said Richard Clinch, director of economic research at the University of Baltimore's Jacob France Institute. "Black & Decker will be a division headquarters."

Some analysts called the deal a savvy move for two companies hurt by the slump in construction, and the companies described it as a merger of industry players on different sides of the tool spectrum.

"I think this is a very unique and complementary fit," said Nolan D. Archibald, Black & Decker's chairman and chief executive. "I don't think there would be another company that could fit better with Black & Decker or one that could fit better with Stanley. We are not directly competing, although we sell our products through the same distribution."

But Maryland political and economic-development leaders bemoaned the loss of a local Fortune 500 company - one of only three in the metro area. The others are Constellation Energy Group and Legg Mason Inc.

"Having the worldwide headquarters of Black & Decker here in Towson has long been a point of pride for Baltimore County," said County Executive James T. Smith Jr. "The company has been an important part of our economic landscape for decades. This is clearly not a positive development. But such decisions are based on global competition. This is the sort of thing we have to expect in this tough economy."

Other area headquarters lost to mergers or acquisitions include The Rouse Co., Alex Brown Inc. and USF&G; Corp.

There could be more layoffs beyond the Black & Decker headquarters, though the companies have not yet targeted specific jobs. Black & Decker told employees in a memo that it expects "less than 10 percent of the combined company's work force to be affected," which means the possibility of several thousand job cuts overall. Together, they employ 38,000.

Under terms of the deal, Black & Decker shareholders would get 1.275 shares of Stanley common stock for each share of Black & Decker common stock. That's a premium of about 22 percent on Black & Decker's closing share price on Friday. The deal will work out to about $57 or $58 per share for Black & Decker shareholders, who saw their stock close at $47.34 Monday.

Stanley shareholders will own just over 50 percent of the equity of the combined company, with Black & Decker shareholders owning the rest. The companies said they expect the deal to close in the first half of 2010.

Black & Decker, with its DeWalt brand, is a leader in the professional power tools market and sells do-it-yourself tools under the corporate name. It has 20,000 employees worldwide. Stanley - a 166-year-old firm that sells tools under its name, plus such brands as FatMax and Bostitch - employs 18,000 people.

Both companies have been buffeted by the recession and housing-market collapse. Less demand for new construction and home-improvement projects has meant less need for tools.

In 2008, Black & Decker's profit dropped 43 percent, to about $294 million. Stanley's profit shrank 30 percent, to $225 million. Each has laid off workers in the past year.

"Both companies have been hit hard throughout the downturn, but Black & Decker more so," said Anthony Dayrit, an equity analyst with Morningstar Inc. Stanley has been more protected because it has an industrial product offering and a security business, he said.

Archibald and a spokesman for Stanley said that even though the steep drop in housing starts hurt sales, the economy had nothing to do with the decision to merge.

"If you look at our balance sheet and look at our cash flow, it had nothing to do with the economy," Archibald said. "Not only were we surviving, we were prospering. Both of our companies were doing extremely well in a very difficult economy. We had a very bright future. It was a question of if it would have been brighter with Stanley."

Said Tim Perra, a spokesman for Stanley: "We think the combined company would be able to take advantage of a resurgence in the market. But this really is a transition that makes a lot of sense no matter when."

Archibald said he was approached by John F. Lundgren, Stanley's chairman and CEO, about the possibility of a deal six months ago. They met for lunch two months later in New York when discussion got more serious and the plan began to move ahead. Archibald said they could be a bigger "powerhouse" in the marketplace as a combined company, with the potential to create $1 billion in free cash flow by 2012.

Dayrit, the Morningstar analyst, thinks Stanley is paying a fair price for Black & Decker. "It makes sense, bringing together two of the strongest brands in the tool market arena."

Although both companies are well-known tool names, their businesses have diverged in recent years and wouldn't duplicate each other much, said analyst Nicholas Heymann of Sterne Agee in New York. That lowers the chance that antitrust regulators would block the deal.

"It's pretty complementary," Heymann said, adding that the pneumatic nailers both companies make are "really the only major overlap that I'm aware of."

While Black & Decker's strength is power tools, Stanley has gone heavily into home-security systems and hardware such as hinges and window locks.

Analyst David S. MacGregor with Longbow Research in Independence, Ohio, thought Black & Decker should have gotten a higher price. "It's a difficult environment for them, but they have been through down cycles before. I'm a little confused why they felt they had to sell."

He speculated that Archibald, Black & Decker's CEO for 24 years, is nearing retirement and the company might not have an heir to replace him. Under the terms of the deal, Archibald would stay on as executive chairman for three years. Lundgren, head of Stanley, would be president and chief executive officer of the combined company.

Archibald would not speculate on his role beyond the three-year period.

Anxiety - and attempts to ease it - followed the announcement. As employees left the Black & Decker complex for the day, one said he was "a little distraught."

David Iannucci, Baltimore County's economic development director, said the loss of one of the state's remaining Fortune 500 companies is "of immediate concern" to the area, "but in the long term, we'll be most concerned about maintaining and retaining as much of the headquarters operations as possible."

Gov. Martin O'Malley plans to talk with Stanley's CEO and has directed the state labor and economic development departments to provide employment services to any displaced workers. Though Archibald insists the deal is a "merger of equals" and not a sale, he acknowledged that Stanley has the power to call the shots.

"They are paying a significant premium to our shareholders, and therefore they are the ones who determined where the corporate headquarters should be," he said.

Baltimore Sun reporters Jay Hancock, Eileen Ambrose, Gus G. Sentementes, Laura Smitherman, Nick Madigan and Mary Gail Hare contributed to this article. Black & Decker

Headquarters: Towson

Employees: 20,000 (1,200 in Baltimore County)

Operations: Five states, six foreign countries

Products: Power tools, hardware and home improvement products

Sales (2008): $6.1 billion (8% annual decline)

Profit (2008): $293.6 million (43% annual decline)

Brands: Black & Decker, DeWalt, Porter-Cable, Price Pfister, Kwikset

The Stanley Works

Headquarters: New Britain, Conn.

Employees: 18,000

Operations: 17 states, 15 foreign countries

Products: Consumer and industrial tools, security systems

Sales (2008): $4.4 billion (1.5% annual increase)

Profit (2008): $225 million (30% annual decrease)

Brands: Stanley, Bostitch, FatMax, MaxGrip, DynaGrip, PowerLock, Proto, Husky, Vidmar, ZAG

Sources: Corporate Web sites, Securities & Exchange Commission filings, Baltimore County government Web site

Timeline

1910: Duncan Black and Alonzo Decker quit their jobs and form their own company with $1,200 in capital. They initially made a bottle-capping machine and a candy-dipping device. They soon begin work on a power drill from a plant on South Calvert Street in today's Inner Harbor.

1917: The firm patents a drill design, called the world's first portable power drill with a pistol grip. It is related to a portable air-compressor they had also patented. Also, Black & Decker's first plant opens in Towson.

1919: Sales at the young company surpass $1 million annually.

1923: The company begins selling a low-priced power drill.

1941: The company makes shells and tools for World War II.

1946: The first line of home utility drills is introduced after Alonzo G. Decker Jr., son of company's founder, notices that workers were stealing industrial power drills from defense contractors. They took the drills, then not available at local hardware stores, to do home improvements. The firm begins making electric drills, drill-bit sets, portable circular saws, jigsaws and sanders for the do-it-yourself market.

1961: Black & Decker introduces the DustBuster cordless vacuum. It also brought out a battery-powered drill - the first of a type widely sold today.

1968: Black & Decker develops a no-torque, cordless power drill used on the Apollo 16 and 17 missions to the moon. The drill is used to drill the moon's surface in the early 1970s.

1995: Black & Decker begins operations in India and China. It introduces its DeWalt power tools to Europe and Latin America.

2003: Black & Decker acquires Baldwin Hardware.

2009: The company sees earnings decline in part because of the downturn in housing construction but says the demand for its products has started to stabilize.

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