NEW YORK -- Black & Decker Corp., the Towson-based consumer products company, announced yesterday the sale of a $150 million ownership stake to Newell Co., an Illinois-based manufacturer with a hearty appetite for corporate takeovers.
The move will raise Newell's stake in Black & Decker to about 15 percent, but the acquisitive investor's influence will be constrained by a string of conditions, including a comprehensive 10-year "standstill" agreement prohibiting it from adding to its B&D holdings. Other conditions limit how Newell may dispose of the shares.
"It's a good deal for Black & Decker, and they have clearly taken precautionary efforts to ensure it will continue to be a good deal," said Nicholas Heymann, an analyst with County NatWest Wood Mackenzie. "There are an exceptional amount of restrictions to prevent [Newell] from becoming a wolf in sheep's clothing."
Black & Decker's shares rose $1.75 to close at $16.25 on the New York Stock Exchange.
The Maryland company said the money raised in the complex deal will be used to pay down debt assumed in its $2.675 billion 1989 takeover of Emhart Co. The sale, in the form of convertible preferred stock, is a reversal of a recent corporate strategy that explicitly renounced the issuance of new equity.
A convertible preferred share is essentially a bond that can be converted to stock, and its dividend is in effect interest. Black & Deckersaid that because the convertible stock's 7.75 percent dividend is below the 9 percent it is currently paying on its $3.2 billion in outstanding debt, the deal will have a positive impact on earnings. The new preferred stock carries a conversion price of $24 a share.
Analysts suggested the move might have been prompted by Black & Decker's inability to use asset sales to pay down debt as quickly as previously planned, as well as the threat of an acquisition attempt by Newell, which has a history of hostile takeovers.
As part of the announcement, the two companies revealed that 18 months ago, Newell quietly acquired a stake in Black & Decker of just under 5 percent, the threshold above which it must be reported. Discussions between the two companies, initiated by Newell, began at that time and resulted in the current agreement. Both boards of directors approved it Tuesday.
Newell will continue to hold about 4.5 percent of Black & Decker's common stock. Together with the preferred, that would represent a cumulative equity interest of about 15 percent, making Newell by far the largest single shareholder in B&D.
In deference to the large stake, a seat will be added to Black & Decker's nine-person board, to be filled by a mutually agreeable candidate. Newell pledged to vote its holdings in accordance with decisions by the board.
Newell has previously used small stakes in other companies as a platform for hostile deals, analysts say.
Even where the company has not explicitly announced an intended takeover, its investments have inspired hostility among corporate managers. Reacting to Newell's attempt to gradually build a large interest in Stanley Works, a Connecticut hardware manufacturer, Stanley Chief Executive Richard H. Ayers recently called Newell "a creeping nuisance."
Newell admits to an unreported position in Stanley and has made securities filings indicating it intends to expand its stake to 15 percent.
William Alldredge, Newell's vice president for finance, said that the company found the Black & Decker transaction attractive because of the dividend, the prospect for capital appreciation in the stock and the prospect that the two could work together on core operations.
"The potential exists to help each other in the marketplace," he said.
Both sell products through similar retailers, with Black & Decker particularly strong in power tools and Newell in cookware, window shades and glassware. In 1987 it acquired glass manufacturer Anchor Hocking for $350 million.
The deal provides cash for Black & Decker at a time when it is struggling with a large debt and a hostile operating climate. The company has said that it wants to reduce its debt-to-equity ratio from approximately 80 percent to 60 percent, but there is widespread perception that some efforts to do so through asset sales are faring poorly.
"It has been a more difficult workout than they envisioned," said Katherine Stults of Dean Witter Reynolds.