At long last, after several previous attempts, it's official: Stanley Works
Here's the tail ...
Here's what we know about the deal so far, based on public information about our two protagonists, and a few of their peers in the Tools & Accessories industry:
Stock |
Annual Sales |
Profit Margin |
Annual profit |
---|---|---|---|
Stanley Works |
$3.85 billion |
4.5% |
$181 million |
Black & Decker |
$4.85 billion |
2.9% |
$142 million |
Danaher |
$11.2 billion |
10.6% |
$1.19 billion |
Snap-On |
$2.48 billion |
6.3% |
$156 million |
Lincoln Electric |
$1.98 billion |
5.1% |
$100 million |
Toro |
$1.58 billion |
4% |
$63 million |
Simpson Manufacturing |
$0.60 billion |
2.8% |
$17 million |
Data from Yahoo! Finance based on trailing 12 months. Note that the numbers do not exactly match company estimates, presumably because the situation is in flux, and revenues are falling.
So as a result of this merger, the new "Stanley Black & Decker" (SBD) will boast about $8.7 billion in combined annual revenues, making it the second biggest player in this market. Profits-wise, too, SBD will play second fiddle to Danaher, netting about $323 million. However, if you ask the companies' management, merging the two shops should yield $350 million in annual cost savings, adding "approximately $1.00 per share" to the bottom line.
How long's the tail?
"$1 per share." That's an interesting number, and it deserves clarification. First, the anticipated bottom-line boost won't arrive in full until the third year post-merger. Second, the "per share" qualifier raises the question: Just how many shares are we talking about here?
Stanley has 80 million shares of its own. It's issuing 1.275 new Stanley shares to replace each of Black & Decker's 59.5 million. Result: 156 million shares total. A $1-a-share profit improvement therefore presumes roughly $156 million in extra profit dropping to the bottom line.
And does it wag?
Add this to the two firms' current earnings, and we're looking at perhaps $480 million in profits in three years' time. Matched against the combined firm's presumed market cap of roughly $7.75 billion based on yesterday's close, this works out to a valuation of 16 times future earnings.
Right off the bat, that seems a high price to pay for a couple of firms (or one coupled firm) with single-digit growth rates. All the more so given that even this valuation depends largely on the expected cost savings materializing. Is it worth the risk?
Take a look at past high-profile merger participants Time Warner