Is a Stanley spin-off the next big deal?
In all the hubbub surrounding the GE-UTC deal, perhaps the most interesting post I've seen came from Kenneth Klee at the Deal. Here's the crux of it:
Yet the [Black & Decker] deal does steer Stanley back into the consumer/retail arena, reducing security's contribution to only about 25% of the new company's sales. That already has some folks speculating about unlocking the value of the $2 billion-sales unit. A Nov. 3 Raymond James research report endorsed the merger while also speculating that it increased the odds of a security sale or spinoff.He's got a point. Everything coming out of Stanley has been about RMR and service, and the security portion, as Klee notes, actually contributed 43 percent of the company's profit last year. Brett Bontrager, president of Stanley CSS, told me on more than one occasion that Stanley was eager to get away from box store sales because the margin was crap and you're in a constant battle with the retailers over price. So, what do they do? Merge with Black & Decker, which is pretty heavily dependent on the Home Depots of the world, it would appear to me. Of course - huzzah! - they'll be able to lay off a bunch of people, which we all know Wall Street loves right now (you should have heard the pride in the voice of UTC's Ari Bousbib today when he talked about cutting 10,000 positions at Carrier over the course of 2010. (Note: I don't think he takes personal enjoyment in the layoffs. I just think he's been crazily pressured to increase margin and cut costs and this plan to cut so much margin and cost with layoffs was clearly well received by one and all on the Street. Thus the pride. But at what point do employers step up and declare they're going to live with slightly smaller margins and employ more people and be the bedrock of a community or something? You'd think there would be one rogue out there, right?). But why, when you've made this huge push into service would you merge with Black & Decker, which has no recurring model whatsoever (unless I'm missing something)? So, I can see why shareholders might clamor for security, with its unbelievable margins and recurring revenue that has crazy value, to be sold off for a high multiple, or spun off into a very lucrative second company, a la Broadview. Great post by Klee, though. Really got me thinking.