The head of Black & Decker Corp. is giving up $20.5 million in severance he is eligible to receive because of the company's planned merger with The Stanley Works, according to regulatory documents filed Tuesday evening.
Nolan D. Archibald, who has led Black & Decker for 24 years, is entitled to the money under his contract with the Towson-based power tool maker because he is technically being terminated from his job in the merger. He will become executive chairman of the newly combined company, Stanley Black & Decker, while Stanley CEO John Lundgren will keep his present title.
Archibald's new pay package in the merged company will include an annual base salary of $1.5 million and up to $1.9 million in annual bonuses. He will also be eligible for stock options and awards, as well as a "cost synergy bonus" of up to $45 million if he meets certain goals by the end of his three-year contract.
A compensation expert praised Archibald's decision to give up the severance.
"It's a well-thought-out, balanced approach that seems to imply the executives had the best interest of both companies' shareholders in mind when they were constructing this," said Lawrence G. Robinson, managing director of the West Coast office of Steven Hall & Partners, an executive pay consulting firm.
Archibald was not available for comment.
Black & Decker spokesman Roger Young said, "It's a recognition that he will continue to get paid as executive chairman. He realized that he wants to be reasonable and he has upside opportunity in this agreement, but it's tied to the performance and that is the appropriate way to go."
Archibald has a pension from Black & Decker worth $35.5 million as well as $15.7 million in a supplemental retirement savings plan. Archibald also has extensive stock holdings in Black & Decker, according to a company proxy statement.
The toolmakers, which boast recognized brands such as DeWalt, Kwikset and Bostitch, announced Monday that they were merging in an all-stock deal worth $4.5 billion. Stanley will have controlling interest in the new company, which will be headquartered in New Britain, Conn.
Most of the 250 corporate workers at Black & Decker's Towson campus - which includes information technology, legal, human resources, marketing, and research and development - are likely to lose their jobs once the merger is completed in the second half of 2010. And more cuts are possible, according to filings with the Securities and Exchange Commission.
Employment will be reduced "less than 10 percent," across both companies in a bid to lower costs by $350 million over three years, partly by eliminating overlapping functions. The combined company will have about 38,000 employees, which could mean up to 3,800 job cuts.
During a conference call with analysts Tuesday, Stanley executives reiterated that they would maintain Black & Decker brands. But they're not ruling out that the Black & Decker power tool division in Towson could be hit again.
"I would say that any time you've seen that cost synergy number thrown out there that unfortunately it probably means job cuts," said Anthony Dayrit, an analyst with Morningstar. "I couldn't speculate to which part of the business would be reduced. But that is something that usually goes along with a merger like this.
Black & Decker spokesman Young said, "it's too early to make a prediction" and "we're just not ready to go into any other detail on that."
Black & Decker has 1,500 workers in Maryland, most in the power tools division.
During Tuesday's conference call, company executives touted the benefits of a merger.
"With Stanley's position in hand tools and Black & Decker's complementary position in power tools, we will have unparalleled depth and breadth in product offerings," Archibald said. "Our portfolio of iconic brands will reflect the tremendous success of both companies' 250-year combined history."
Archibald is the only top-ranking Black & Decker executive who is guaranteed a key position in the merged company. Lundgren said during the call that Stanley's current chief financial officer and chief operating officer would retain their current jobs under the new company.
Archibald's bonuses will be tied mainly to whether he helps achieve the $350 million in cost savings, which the company detailed during the conference call.
Consolidating regional offices and business units, particularly in North America, Europe and Asia, would save about $135 million. Reducing corporate overhead by creating a single headquarters in Connecticut would save about $95 million, and consolidating marketing would save $45 million.
The companies also think they can save about $75 million by combining purchasing power.
"Clearly a bigger company will have a larger purchasing base," allowing it to demand lower prices on materials and freight, said Don Allan, Stanley's chief financial officer. "And so as a result, we will be able to achieve some savings."
Allan said the companies have some overlap in manufacturing and distribution, particularly in their construction and do-it-yourself businesses.
There are chances to boost revenue that aren't outlined in the merger, Allan added, such as cross-selling products and sharing strategies for product development.
Why now? The answers seem clear, Hancock writes PG 3