This "Stanley Black & Decker, Inc." case study discusses corporate governance and social policy in relation to the compensation of the CEO. It also delves into value creation in cases of mergers and transactions involving acquisitions.
​William E. Fruhan
Harvard Business Review (211067-PDF-ENG)
February 14, 2011
Case questions answered:
- What is the incremental value to shareholders of the cost savings (synergies) projected in this merger (use a discount rate of 11%)? How will the value of the synergies be shared in the proposed transaction? What is the impact of the payment method on the distribution of the synergy gains?
- After failing to complete a merger following the three prior attempts noted in the case, why should the proposed transaction be successful this time?
- How much of the incremental value created in this transaction will go to the CEOs of the two firms involved? Hint (back-of-the-envelope): Executive stock options awarded with a strike price at the money are typically worth one-third of the current stock price.
- How do you think the leadership team at Black & Decker (other than the CEO) will view this transaction?
- What issues of corporate governance and social policy are raised by the Stanley Black & Decker merger?
- If you were a shareholder of Stanley, would you vote in favor of this transaction? Would you vote in favor of the compensation arrangements? Would you vote to re-elect the directors at the next annual meeting?
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Stanley Black & Decker, Inc. Case Answers
This case solution includes an Excel file with calculations.
Early discussions in 2009 (from SEC filings)
4/23 – Stanley board of directors authorizes talks
4/27 – Lundgren (L) calls Archibald (A), who says he will consider
4/30 – Archibald calls Lundgren: willing to meet to discuss
6/9 – Lundgren and Archibald meet for lunch in NYC. Lundgren stresses the need for management continuity.
6/16 – Archibald sends a letter thanking for discussion of structural, financial, governance, and employment issues
6/18-22 – Lundgren suggests that Stanley’s board seeks commitment from Archibald for his ongoing service to the combined company. Archibald suggests an approach to maintain compensation at levels generally consistent with existing arrangements. Archibald and Lundgren discuss the executive chairman position for Archibald.
6/23 – Lundgren sends a letter to Archibald offering stock for a stock deal at a specified exchange ratio and seeking a commitment from A to remain with the combined company.
After receiving this letter, Archibald contacts each Black & Decker board member to alert them that an offer from Stanley has been received and that the offer will be discussed at their regular July 16 board meeting.
Lundgren and Archibald continue to clarify their views on possible structural, financial, governance, and employment issues prior to their respective upcoming board meetings.
Archibald should have contacted his board of directors earlier!
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