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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Case answers for Stanley Black & Decker, Inc.
This case solution includes an Excel file with calculations.
Early discussions in 2009 (from SEC filings)
- 4/23 Stanley Black & Decker, Inc. board of directors authorizes talks
- 4/27 Lundgren (L) calls Archibald (A), who says he will consider
- 4/30 A calls L: willing to meet to discuss
- 6/9 L and A meet for lunch in NYC. L stresses the need for management continuity.
- 6/16 A sends a letter thanking for discussion of structural, financial, governance and employment issues
- 6/18-22 L suggests that Stanley board seeks commitment from A for his ongoing service to the combined company. A suggests an approach to maintain compensation at levels generally consistent with existing arrangements. A and L discuss the executive chairman position for A.6/23 L sends a letter to A 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, A contacts each B&D 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.
- L and A 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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