Introduction

Since 1910 Black and Decker (B&D) has dominated the tool industryi. With clear dominance in the this industry, B&D set it’s eyes on expanding. Did B&D bite off more than it could chew? How do potential shareholders feel about a company known for making drills expanding its portfolio as far out as golf clubs? This report will address the mistakes B&D made, and may still be making.

How does the best get better?

The power tool market is a mature and cyclical market, with an annual growth rate around 4%.ii CEO Archibald felt that diversifying out of B&D’s core competency of power tools, was necessary to achieve satisfactory corporate growth.

Black & Decker Manufacturing

Company

(1984)

Global Leader in Consumer & Power

Tools

B&D Acquires GE Small Appliances Division (1984) B&D Acquires GE Small Appliances Division (1984)

Advantages

Market Leader (25%)

$500 million annual revenue

Disadvantages

Low profit margin ½ revenue comes from 1/150 product) Strong brand alliance to GE

“Would you buy a toaster from a

drillmaker?”

Black & Decker Corporation

(1985)

Emphasis being on marketing &

sales of consumer products

CEO Archibald had turned a B&D which had posted $156.4 million loss in 1985, into a thriving profitable firm posting profits of $91.7 million in 1988. Archibald’s success lies within his strategy.

ARCHIBALD’S STRATEGY ARCHIBALD’S STRATEGY

Consolidate Production – Boost factory production by utilizing newer plants more efficiently & closing down the older ones.

Increase Research and Development – Goaled division to produce 12+/year

Centralized Global Operations – product variations reduced, and production runs were lengthened.

Diversification – growth as a company lied within expanding products and services

Archibald Goes Overboard

With a successful rebranding strategy of GE products previously acquired under his belt, Archibald attempted to acquire two other firms unsuccessfully. In 1989, B&D agreed to acquire Emhart Corporation for $2.8 billion.

Concerns with Emhart Purchase

Stockholders failed to see ‘strategic fit’ Substantially larger than B&D per businesses and products Acquired heavy loans to finance purchase Paid 3x the book value per share Maximum Debt/Equity Ratios (per creditors)

Source: SEC Filings (1988) BDK

Emhart operated in over a dozen different product categories under three specific business divisions. In order to satisfy requirements of the financing B&D agreed upon, divesting assets was a necessity.

Source: 1988 Annual Report (BDK)

Correct Decision to Divest

I nformation/Electronic Systems Recreational Outdoor Products Glass Container Forming

Operational Cost too high

Minimal Growth Potential

Fierce Competition

Lack of Synergy/Strategic Fit

Poor Decision to Divest

Corbin Russwin Dynapert Household Products

*See Appendix for weight evaluations

High Market Potential/Share

High Brand Equity

Synergy w/ B&D products

Strategic Fit

Black and Decker Today

B&D Companies

(2005)

Black and Decker

Dewalt

Porter-Cable

Delta Machinery

Kwikset

Baldwin

Weiser Lock

Price Pfister

Emhart Teknologies

Black and Decker currently own a variety of brands under 9 different companies. Net income has continued to rise for B&D since 2001 with net income last

reported of $543.9 million.

Black and Decker continues its quest to perfect its portfolio. B&D purchased Baldwin Hardware Corporation and Weiser Lock Corporation from Masco for $275 million in 2003.iii B&D companies like Porter-Cable and Delta were purchased as a part of Tools Group from Pentair, Inc in 2004 for $775 million.iv

Stockholder’s Point of View

For nearly 100 years B&D has been discovering new ways to tap a mature market. Innovations like the Snakelight flashlight and cordless tools have found ways to keep demand alive in a saturated market. Stockholders today shouldn’t be surprised that B&D look constantly to find ways and means to make the company more profitable. The only realm B&D is not willing to do business outside of is the realm of profitless opportunities.

Quick Current

Shareholders should take notice the drastic difference

1996 .54 1.20

1997 .86 1.51

1998 .64 1.27

1999 .62 1.22

2000 .56 1.20

2001 .89 1.77

2002 .86 1.51

2003 .85 1.68

2004 .87 1.63

2005 .93 1.48

between the quick and the current ratios. The difference is showing that in order to meet all current liabilities,

inventory would have to be sold.1

1996 1.04

1997 1.04

1998 2.37

1999 1.55

2000 1.80

2001 1.65

2002 2.08

2003 1.08

2004 .77

2005 1.15

Debt/Equity Ratio

Shareholders should be aware that B&D isn’t afraid to finance their

Growth and expansion as shown by a not

favorable Debt/Equity Ratio.

Profits are on the rise, as well as corporate growth on the whole. Earnings Per Share have increased steadily since 1998 to a 10 year in 2005.v

Some at B&D will argue they paid down the entire balance of their Emhart acquisition loan as early as 1990.

Since so much of their operations are financed by debt, could it be possible they merely “robbed Peter to pay Paul?”

Stockholder Suggestion: Due to high debt burden, slow market growth (4%) and risk taking management, Do not purchase Black and Decker.

Conclusion

While B&D was trying to get their sales figures in line with the goals and expectations of the creditors, they ignored the shareholders. B&G was stretched too thin. In a firm highly leveraged by debt, it can not afford to tarnish its reputation and credibility with creditors. Shareholders come second to the bank in the decision making process. To have to acquire the “package deal” of Emhart was not a sound strategic move. Opportunity Costs of other firms that could have been easier managed were not an option. Selling many of the firms under management expectations is another indication of its dissatisfactory performance. B&D would have been better off doing nothing than trying to triple products over night.

1 All data used for ratios were provided by Securities Exchange Commission Reports/Annual Reports from 1996-2005 for Black and Decker Corporation (BDK)

i Black and Decker Corporation. http://www.bdk.com/ 2006

ii “Tool market to exceed $13 billion”, Assembly 43 (5) May 2000

iii Black & Decker Company Information. http://www.blackanddecker.com/CustomerCenter/Company-Information.aspx 2006

iv Black & Decker Company Information. http://www.blackanddecker.com/CustomerCenter/Company-Information.aspx 2006

v SEC Filings for BDK Annual Reports

1