Black & Decker Corp. will issue 150,000 shares of convertible preferred stock to an Illinois-based company for $150 million in a move to reduce its multibillion-dollar debt.
The Towson manufacturer and marketer of power tools and home products is carrying a $3.2 billion debt load largely due to its $2.65 billion acquisition of Emhart Corp. two years ago. Black & Decker is banking on Emhart, which makes Price Pfister plumbing fixtures and Kwikset locks, to eventually broaden its retail base.
"In the scheme of things we haven't made a huge difference but the deal is an important step in debt reduction," said Barbara B. Lucas, Black & Decker's vice president for public affairs.
Lucas said in effect the stock deal allows Black & Decker to obtain much needed capital at below the company's current average borrowing rate of about 9 percent. She said the deal will save Black & Decker $1.9 million annually because of the rate differential.
Since the acquisition, Lucas said, the company has reduced its debt by more than $1 billion and is trying to sell off "non-strategic" Emhart businesses. "It's a major step toward improving Black & Decker's capital structure," said Nolan D. Archibald, Black & Decker's chief executive officer.
Lucas said yesterday that the Newell Co., in Freeport, Ill., approached Black & Decker about buying the stock. Newell manufactures and sells do-it-yourself consumer hardware and houseware products. Officials at both companies contend they are not competitors although both produce products that are sold in hardware stores such as Hechinger and Home Depot. Newell products include such brand names as Mirro cookware and Anchor Hocking glass.
"I don't think there is any area of product overlap," said William T. Alldredge, vice president of finance for Newell.
Terms of the private placement call for Black & Decker to issue a new Series B preferred shares paying a 7 3/4 percent cumulative dividend. The deal will net Newell about $11.6 million a year. The stocks are convertible when Black & Decker common stock reaches $24 a share. Black & Decker closed yesterday at 16 1/8 , up 1 5/8 .
If converted, the 150,000 shares would equal 6.25 million shares of common stock or 41 2/3 shares of common stock for every share of preferred stock. Black & Decker has about 61.8 million shares outstanding. Newell will have voting rights equivalent to the conversion rights, which means the company can vote the full 6.25 million shares.
The new preferred stock, together with Black & Decker common stock that Newell purchased on the open market 18 months ago, will represent about a 15 percent equity interest in Black & Decker.
The transaction is subject to regulatory clearance and is expected to close in about 30 days.
To safeguard against a possible takeover by Newell, terms of the deal include a comprehensive 10-year "standstill" agreement in which Newell has agreed it will limit its holdings of Black & Decker stock to its current level and that it will not seek a business combination with Black & Decker.
The agreement also restricts the ways in which Newell can dispose of its Black & Decker shares. It gives Black & Decker the option at the end of 10 years to repurchase the preferred shares and any common stock issued upon conversion held by Newell.
Newell will have the right to propose one mutually acceptable director to the Black & Decker board and has agreed to vote all of its Black & Decker stock consistently with the recommendations of Black & Decker's board.
"We went along with the restrictions in order to give Black & Decker comfort that we will be a friendly and supportive shareholder," Alldredge said.
Alldredge said the deal is good for Newell because it will give the company an opportunity to develop a relationship with a major nationally known company.
"The fact that they are in the same business gives them a better understanding of our strategic plan in acquiring Emhart," Lucas said. "We want to put together a powerful package of products."