The slow, steady dismantling of Sears (NASDAQ: SHLD) for parts has taken another big step forward.
Stanley Black & Decker (NYSE: SWK) has made a deal to buy the company's Craftsman brand. The deal allows Stanley to develop, manufacture and sell Craftsman-branded products in non-Sears Holdings retail, industrial and online sales channels globally. Sears will still be able to sell Craftsman wares sourced from existing suppliers through its current retail channels via a perpetual license from Stanley Black & Decker.
"We are pleased to reach this agreement, after determining that externalizing the Craftsman brand would accomplish our goals of driving value for Sears Holdings and positioning Craftsman for future growth," said Sears CEO Eddie Lampert in a press release. " This transaction represents a significant step in our ongoing transformation to a membership focused business model."
What does the deal mean?
Sears will get some money to help meet its immediate needs and it will be able to continue selling Craftsman as it always has. The company will also receive $525 million at closing, $250 million at end of year three, and annual payments on new Stanley Black & Decker Craftsman sales through year 15 (2.5% through 2020, 3% through January 2023, and 3.5% thereafter). The value of these payments will be approximately $900 million. After 15 years Sears will still be able to sell the brand, but will start paying a 3% royalty.
Stanley Black & Decker will be getting the right to expand Craftsman into new channels. Currently, according to the press release, only approximately 10% of Craftsman-branded products are sold outside of Sears-owned locations.
"This agreement represents a significant opportunity to grow the market by increasing the availability of Craftsman products to consumers in previously underpenetrated channels," said Stanley Black & Decker CEO James M. Loree. "We intend to invest in the brand and rapidly increase sales through these new channels, including retail, industrial, mobile and online. To accommodate the future growth of Craftsman, we intend to expand our manufacturing footprint in the U.S. This will add jobs in the U.S., where we have increased our manufacturing headcount by 40% in the past three years."
This might be good for all
In making this deal, Sears gets to have its cake and eat it too. The company can continue selling its iconic brand while also participating in its growth, but without having to do anything. An increase in marketing the Craftsman name may send more customers to Sears -- and if not, at least the chain will get years' worth of royalties.
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Daniel Kline has no position in any stocks mentioned.