Black & Decker Corp., the world's biggest maker of home fix-it tools, announced yesterday that it would make a major repair to its balance sheet.
The power tool company said it will sell PRC Inc., a huge government contracting business it acquired as part of Emhart Corp. in 1989, to the public. It will also sell 18 million to 21 million more shares of its own stock.
Towson-based Black & Decker said it hopes to raise more than $800 million from the two sales and to use the money to pay off part of its $2.7 billion in debt remaining from the Emhart acquisition.
The news was hailed on Wall Street, where bond-rating firms said they would consider upgrading the company's debt out of "junk" status to investment levels. The move would be important to Black & Decker, since it must pay higher interest on its "junk" bonds.
And stock analysts said the move to reduce debt was well-timed and welcome.
"This is excellent," said Paul Whelan, who follows the stock for investor clients of New York-based Louis Nicoud & Associates.
Although the purchase of Emhart brought Black & Decker such well-known hardware lines as Price Pfister faucets and Kwikset locks, the acquisition added more than $300 million in annual interest expense.
Moreover, PRC, based in McLean, Va., didn't really belong as part of a hardware company, Mr. Whelan said.
Black & Decker said yesterday that it expects to receive $330 million to $360 million from the initial public offering of about 17 million shares in PRC. Black & Decker will not have a stake in the newly independent contracting company.
PRC, which had operating income of $32.3 million on revenues of $684 million in revenue last year, has 7,200 employees, said Black & Decker spokeswoman Barbara Lucas.
Black & Decker tried to sell PRC privately for at least $400 million three years ago. But the easing of tensions between the United States and the former Soviet Union made investors leery of a $700 million-a-year government contracting business that received nearly half of its revenue from the Defense Department.
Analysts also praised the decision to sell more Black & Decker stock, saying the reduction in debt should improve the company's profits.