Tool-Maker Merger's Impact Seen Muted For Home Depot, Lowe's

Stanley Works' (SWK) $4.5 billion acquisition of Black & Decker Corp. (BDK) may give home-improvement retailers a bigger vendor with more financial muscle, but several industry watchers said Tuesday that the combination shouldn't hurt results at Home Depot Inc. (HD) or Lowe's Cos. (LOW).

"I don't see this as a real negative for either" Home Depot or Lowe's, said retail industry consultant Craig Johnson of Customer Growth Partners.

He and others said the retailers should benefit from a stronger Stanley Black & Decker, as the new company will be called after the planned deal closes sometime next year. By combining their sales forces and eliminating duplicative distribution systems, Stanley and Black & Decker should be able to get their products into stores more efficiently.

At the same time, Stanley and Black & Decker's products are mostly complementary, providing "little incremental leverage that the combined company can achieve over the retailers," said Barclays Capital analyst Michael Lasser.

"Even in a case where the vendors were able to attain better product margins at the expense of the retailers, we think the impact on the companies' overall gross profit would be limited," Lasser said in a research note.

Still, Wall Street Strategies analyst Brian Sozzi said that, under the combined vendors, he expects fewer promotions such as Home Depot's current one offering 15% off certain power-tool purchases when customers trade in old power tools. Home Depot and Lowe's "have definitely pushed their vendors much harder for price concessions and discounts in the store over the last year," he said. "You might see less of them going forward."

Smaller, independent hardware stores buying nails, power tools and outdoor power equipment from Stanley or Black & Decker might also find the vendors less forgiving on prices as they try to stock shelves in 2010, Sozzi said.

Home Depot declined to comment, citing a company-imposed quiet period ahead of its Nov. 17 third-quarter earnings release. Lowe's, too, declined to comment on any specific impact to business, saying it was excited "about the potential innovation and efficiencies a combined entity can bring."

Lowe's sources 40,000 products from more than 7,000 merchandise vendors worldwide, with no single vendor accounting for more than 7% of total purchases, according to an SEC filing. Tools generated $2.5 billion in sales, or about 5% of the company's total, in 2007.

Home Depot doesn't break out sales of tools, but hardware and seasonal products generated about 29% of 2008 sales.

Stanley said during a conference call Tuesday that the companies' combined business with home centers and mass merchants will represent about 24% of pro forma sales, up from about 13% at Stanley currently. But it expects that percentage to shrink over time as its other businesses grow faster than construction and do-it-yourself.

Stanley Works, based in New Britain, Conn., makes well-known brands such as its namesake tools and Sonitrol security systems. Black & Decker, based in Towson, Md., makes tools under that brand name, as well as DeWalt tools, Kwikset residential locks and Price Pfister faucets.

Stanley shares are up 8% at $48.79, while Black & Decker shares surged 28% to $60.69.

-By Mary Ellen Lloyd, Dow Jones Newswires, 704-948-9145; [e-mail]