Nov. 3 (Bloomberg) -- Stanley Works agreed to purchase Black & Decker Corp. yesterday for $3.5 billion in stock after on-and-off talks that spanned almost three decades.

The companies discussed combining three other times over about 27 years, Black & Decker Chief Executive Officer Nolan Archibald said in an interview. Stanley Works’ offer values Black & Decker, the maker of DeWalt power drills and Price Pfister faucets, at about $57.57 a share, or 22 percent more than yesterday’s closing price.

Earlier attempts fell apart over who would be CEO, Archibald said. This time the two companies decided on Stanley CEO John Lundgren, a 58-year-old who worked at tissue and plywood maker Georgia-Pacific before joining New Britain, Connecticut-based Stanley in 2004. Lundgren said he called Archibald in late April to propose the move.

“The more we talked, the more we felt like these were two very complementary and unique companies,” Archibald, 66, said in a joint interview yesterday.

The two had lunch the first week of June at a private club in Manhattan to avoid being seen by investment bankers, Lundgren said in the interview. Both CEOs were “totally swayed” by the potential savings, he said. The companies estimate they can pare $350 million in costs.

The deal combining the two biggest U.S. toolmakers joins Black & Decker’s DeWalt power tools and Kwikset deadbolts, with Stanley’s Mac wrenches and Best door locks. A combination of the two companies was first discussed in the early 1980s before either Archibald or Lundgren became CEO.

Shares Jump

Black & Decker, based in Towson, Maryland, climbed $14.66, or 31 percent, to $62 at 4:15 p.m. in New York Stock Exchange trading. Stanley rose $4.54, or 10 percent, to $49.69.

The combined company will have a larger geographic sales reach, additional presence in high-growth emerging markets and the ability to deliver higher operating margins, Archibald said today on a conference call. The company will also fuel growth through acquisitions using the excess free cash flow it will generate, Lundgren said on the call.

The housing industry contributed to U.S. economic growth for the first time in four years last quarter as tax credits sparked demand for homes and energy-efficient renovations. Still, analysts predict both companies will have lower sales this year as home-price declines contribute to slower consumer spending.

‘New Normal’

The transaction “makes strong sense as the housing market resumes ‘new normal’ growth and raw-materials prices rebound,” Brian Sozzi, an analyst at research firm Wall Street Strategies in New York, said in a note to investors yesterday.

Stanley, which makes FatMax tape measures and Bostitch nail guns, has been reducing its dependence on the construction and the do-it-yourself repair market in the U.S. Sales to home- improvement centers, including Home Depot Inc. and Lowe’s Cos., fell to 13 percent of total revenue last year, compared with 40 percent in 2002, according to a company filing.

Stanley has bolstered its commercial security unit, which accounted for 34 percent of sales last year, up from 10 percent in 2001.

Home Depot and Lowe’s made up about 30 percent of Black & Decker’s sales last year.

Black & Decker’s Kwikset and Baldwin door-lock brands will complement Stanley’s security unit, which provides hardware and software for commercial use, Lundgren said. The new company will be called Stanley Black & Decker.

Job Cuts

Lundgren will be president and CEO of the combined company, according to the statement. Archibald will be executive chairman of the combined company for three years.

Fewer than 4,000 jobs, or less than 10 percent of total positions at the combined company, will be cut, Lundgren said. Most of the reductions will be in corporate offices, as well as through purchasing, regional and business unit consolidations and factory efficiencies, Lundgren said.

Stanley traces its roots to 1843 when Frederick Trent Stanley opened a store in New Britain selling wrought-iron door bolts and other hardware. Sixty-seven years later, S. Duncan Black and Alonzo Decker opened a machine shop in Baltimore.

Stanley shareholders will own about 50.5 percent of the equity of the combined company and Black & Decker shareholders will own about 49.5 percent, according to the statement.

The transaction will probably close in the first half of next year, the companies said.

To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net

Last Updated: November 3, 2009 16:30 EST