In 1989, Black & Decker Corp. Chief Executive Officer Nolan D. Archibald piled more than $3.8 billion of debt on the Towson-based company to acquire the Emhart Corp.
Two questions have followed him ever since: "Why?" and "Where do you go from here?"
"My wife asked me then, and she continued to ask me every week since that time, 'Why did you go and buy Emhart?' " Mr. Archibald told a near-capacity crowd of more than 60 financial executives last night.
At a dinner meeting of the Baltimore chapter of the Financial Executives Institute at Cross Keys, Mr. Archibald tried to provide answers.
Cutting the tool manufacturer's mountainous debt is Mr. Archibald's first priority.
By shutting down Emhart's headquarters in Farmington, Conn., consolidating factories, and making other cost-cutting moves, the company has already slashed its operating costs a full $100 million since the acquisition, he said.
Since he couldn't quickly unload unwanted Emhart businesses, Mr. Archibald has been forced to rely on other ways to increase the company's cash flow.
Black & Decker has reduced its overall inventory 10 percent to save another $100 million. And Mr. Archibald is holding down capital spending, squeezing another $50 million in savings out of that area.
"It's interesting how you can find many assets that aren't producing when you have to," he said.
By making these and other moves to stimulate cash flow, Mr.
Archibald says, Black & Decker has already put
away the money it needs to meet its next debt payments in March and June.
Though he hasn't found buyers for every Emhart subsidiary he had hoped to sell, the sale of North American Mallory Controls and GardenAmerica leaves Mr. Archibald with more time to find the right buyers.
"We don't have to sell any other businesses if we don't get an attractive price," he said.
By his own admission, Black & Decker was just coming into its own in 1989, after more than half a decade of revenue stagnation and $29 million in losses from 1980 to 1985.
Having beefed up an "anorexic" product line, streamlined operations and hired a new management team, Mr. Archibald had dramatically
transformed the hand tool and appliance manufacturer into a lean, efficient enterprise that set records in sales, earnings and earnings-per-share in 1989.
And then came Emhart.
"With all that turnaround, why would you go out and do something dumb like buying Emhart, taking on all that debt?" Mr. Archibald asked.
Mr. Archibald's plan was to broaden Black & Decker's earnings base, expanding beyond the power tools and household products the company was selling at the time.
Emhart brought with it strong brand names such as Price Pfister faucet line and Kwikset locks, not to mention enticing profit margins of more than 10 percent on many of its products.
As part of his "cut-and-build" strategy, Mr. Archibald intended to streamline operations while expanding the company's product line. The Emhart businesses that fell outside his strategic plan were to be quickly sold off to pay down debt.
Stymied by weak financial markets and the approaching recession, Black & Decker was unable to cash in on the $1 billion in Emhart asset sales that Mr. Archibald anticipated at the outset of the Emhart deal.
On a positive note, Mr. Archibald said that Ad Week magazine found that Black & Decker ranked seventh out of 6,000 names in a survey on brand recognition of 10,000 consumers, beating out Kellogg's, McDonald's, General Electric and Levi's.