Sears Sells Craftsman Brand to Stanley Black & Decker
- By Sydnee Gatewood
Sears Holdings Corp. (SHLD) announced it is selling its well-known Craftsman tool brand to Stanley Black & Decker (SWK) and will be closing 150 stores today.
Stanley Black & Decker will pay Sears $525 million at the close of the deal. After three years, it will pay $250 million. After that, Sears will be paid 2.5% to 3.5% of Craftsman sales for the remainder of a 15-year period. The total payment is estimated to amount to $900 million.
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According to the terms of the agreement, Stanley Black & Decker will develop, manufacture and sell Craftsman-branded products in non-Sears channels. Sears will continue to sell Craftsman products in all its retail channels under a license agreement. For the first 15 years after the close of the agreement, Sears' license will be royalty-free. From then on, it will pay 3%.
The companies project Craftsman sales will be significantly increased due to exposure in previously untapped channels.
"Craftsman is a legendary American brand with tremendous consumer awareness built on a legacy of producing quality products at a great value," Stanley Black & Decker President and CEO James M. Loree said. "This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels. We intend to invest in the brand and rapidly increase sales through these new channels including retail, industrial, mobile and online."
Loree went on to explain the company's plan to accommodate the growth of the brand by expanding manufacturing in the U.S., thereby creating more jobs. Stanley Black & Decker has increased its manufacturing headcount by 40% in the last three years.
A Sears representative confirmed the unlimited lifetime warranty for Craftsman hand tools will remain. The transaction is expected to close later in 2017 after regulatory approval.
In regard to the closing of Sears Holdings stores, the cash-strapped retailer disclosed they will be shutting down nonprofitable locations including 109 Kmart locations and 41 of its namesake stores.
Sears has been struggling from a decrease in sales over the last few years. Chairman and CEO Edward Lampert (Trades, Portfolio) said the store closings are "a difficult but necessary step as we take actions to strengthen the company's operations and fund its transformation."
In addition to the store closings, the company has increased its liquidity. At the end of December, it announced it had obtained a secured standby letter of credit of up to $500 million. It also entered a $500 million real estate backed loan. According to the company, these measures will provide Sears with additional liquidity and flexibility as it closes the sales of the aforementioned assets.
Additionally, Sears' board of directors created a committee in order to raise over $1 billion through the sale of certain real estate properties.
Among the gurus invested in Sears, Bruce Berkowitz (Trades, Portfolio) holds the largest position with 25.9% of outstanding shares. This represents 20.8% of his total assets managed. Lampert holds the second-largest position.
Among the gurus invested in Stanley Black & Decker, Barrow, Hanley, Mewhinney & Strauss holds the largest position with 2.7% of outstaning shares, which represents 0.7% of its total assets managed. In total, 11 gurus hold positions.
After the announcement, shares of Sears jumped 4.4% in early trading. Stanley Black & Decker rose 2.5%.
Sears has a market cap of $1.2 billion; its shares were trading around $10.88 on Thursday with a price-sales (P/S) ratio of 0.04.
Stanley Black & Decker has a market cap of $17.9 billion; its shares were trading around $119.17 on Thursday with a price-earnings (P/E) ratio of 18.14, a price-book (P/B) ratio of 3.04 and a P/S ratio of 1.6.
Disclosure: I do not own stock in any companies mentioned in the article.
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This article first appeared on GuruFocus.
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The intrinsic value of SHLD
