SUBJECT: FM-07

ASSIGNMENT: S TANLEY BLACK AND DECKER, INC.

Q1: What is the incremental value to shareholders of the cost savings (synergies) projected in
this merger? How will the value of the synergies be shared in the proposed transaction?
Ans: the cost saving through this combination was main motivation and projected to
shareholders.
The combined company was expected to save $350 million from 3 rd year and the incremental
value projected in this merger was year 1=$125M, year2=$2350 M & year 3=$ 350 M.

Value of the synergies shared in proposed transaction

400

350
45
300
75
250

200
95
150

100
135
50

0
Cost Synergy in USD Million

Business unit and regional consolidation Corporate O/H

Purchasing Manufactoring & Distribution

Q2: After failing to complete a merger following the three prior attempts noted in the case, why
should the proposed transaction be successful this time?
Ans: Below are the three main reason for successful transaction as per the case.
1: Benefit of Target company shareholder as Black & decker shareholder will get a premium of
21.6%
And also after merger the combined company shareholder EPS will increase by $1/share due to
cost synergy and hence it was win-win for both company shareholders and hence Black and
decker sacrifice on total share % but got better compensation for employees and there
shareholders.
2: Merger generated Personal wealth creation opportunity for Stanley CEO ( John Lundgren ) &
Black & Decker CEO (Nolan Archibald ) .As a part of merger contract John Lundgren would
receive a grant of 1.1 million restricted stock units and this would be additional compensation
benefit apart from his standard compensation ,Same time Nolan Archibald will receive a grant
of stock option of 1 million of merged company share and in addition to that special incentive
up to a maximum of $45million on cost saving target through synergy .
3: 19 Black and decker top Executive also got benefited and job protection like in case of
termination or change in responsibility or power through severance (3 year pay) and benefit (3
years) and income tax gross-ups. Also payment under the B&D long term incentive plan & same
time this Horizontal merger is strategically beneficial for both (Cost saving and increase market
share).

Q4: How do you think the leadership team at Black& Decker (other than the CEO) will view this
transaction? How about the governor of Maryland (Black & Decker’s headquarters state)?
Ans: The two company merged to create a business leadership in the industry. Thus, the
compensation planning of different teams from the two companies and how to synergy
two different teams together would be the major corporate governance issue. Besides,
the 4,000 layoffs will turn out to be the social policy issue. This is a large number of
employees to absorb. B&D will give up and get the compensation from the merger since
B&D also want survival in adverse economic condition, and also they need to scarify
their domination for it. Maryland would be happier because they will be stable on the tax
received by the government.
Q6: If you were a shareholder of Stanley would you vote in favor of this transaction? Would you
vote in favor of the compensation arrangements? Would you vote to reelect the directors at
the next annual meeting?
Ans: yes, I would have voted in favor of this transaction as forecasted EPS is going to be higher
post-merger due to cost synergy and a good option as it will create Horizontal merger and
hence overall expected increase in market share and reach from business perspective.
No as it is evident that both company CEO was mainly focused on their individual compensation
hike by huge % and it is important link it with performance & stressed Goals.
Yes, I would have voted to re-elect them provided as that would help combined company to
achieve their cost synergy goal and objective, which was the motivation behind this merger and
linked with company/shareholder overall benefits.