Trump Test

Stanley's America-First Tool Deal

Its purchase of Craftsman will add more than just revenue.
At Closing, May 23th
146.71 USD
At Closing, May 23th
3.39 USD

M&A as a job creator? That's something you don't see every day.

Stanley Black & Decker Inc. on Thursday agreed to purchase the Craftsman tool brand from Sears Holdings Corp. in a deal that will eventually amount to about $900 million. Typically, when a company uses an acquisition to expand a business it already owns, job cuts -- sorry "synergies" -- are the focus. Stanley instead touted the American jobs it plans to create as it expands the Craftsman brand to other retailers. That's higher up in the press release than the decent earnings boost it expects to get from the deal. Here's CEO Jim Loree:

``While manufacturing in the U.S. is not always an obvious choice to some, it makes good business sense for us.''

Paying lip service to American manufacturing capabilities make sense these days for a lot of CEOs, with President-Elect Donald Trump making it clear that he's willing to aim his Twitter trigger finger at any sort of cross-border production (whether or not he's got his facts right). Thursday, it was Toyota's turn:


But Stanley got on this bandwagon a while ago. The company's "Built in the USA" initiative -- a years-long effort -- is an example of how, at least in some cases, an America-first agenda can work.

Stanley has increased its U.S. manufacturing head count by 40 percent over the past three years. And defying stereotypes that domestic production is more expensive, Stanley says it was sometimes actually able to bring manufacturing back from overseas at a lower cost. It can't make all the components for its U.S.-sold products locally (the company's website says "products made in the USA with global materials"), but it tries. Stanley says customers like the USA label and have rewarded it with more market share. 

Beyond that, Stanley just isn't taking any chances on Trump's hard-to-predict policy plans and their side effects. The strong U.S. dollar and other currency shifts have cost the company as much as $500 million of operating margin over the past four years. Focusing on the U.S. will leave it less exposed to uncertainty over trade with China and Mexico and any tariffs that might result. As Loree diplomatically put it, "the reality is that, it's going to be advisable to have more manufacturing in the U.S." You can say that again.

Building Blocks

After a busy year of acquisitions and divestitures, analysts are projecting stable revenue growth for Stanley

Source: Bloomberg

It's smart PR for a deal that already looks pretty smart. Because Craftsman tools don't currently appear at many non-Sears stores, Stanley can add revenue almost instantly just by plugging the products into its distribution system. The company says the Craftsman brand can achieve $100 million of average annual revenue growth over the next decade. It's a legitimate question whether some of that growth will come at the expense of Stanley's existing tool brands. In addition to its Black & Decker and DeWalt offerings, Stanley agreed to buy Newell Brands Inc. tool unit for $1.95 billion in October. But, for now, investors are giving the company the benefit of the doubt. 

A Bigger Toolbox

Stanley shares rose as much as 3.6 percent following the announcement of its purchase of the Craftsman brand

Source: Bloomberg

Intraday times are displayed in ET.

The two tool deals will push Stanley's debt above its targeted range of about 2 to 2.3 times Ebitda, but one of the benefits of the way the Craftsman deal is structured is that the overall cost is spread out over many years. Stanley will pay $525 million at closing, $250 million after three years and give Sears a certain percentage of new Craftsman sales for 15 years. That's less ideal for Sears, which needs every penny it can get right now, but beggars can't be choosers. It's also not the most ringing endorsement of the retailer that Stanley's Loree had to address what would happen in the event Sears goes bankrupt before the deal closes.

Stanley can't do much to save the jobs of the employees who work at the 150 unprofitable stores Sears just announced it's shuttering. But it can help "re-Americanize'' Craftsman.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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