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Stanley May Turn Deal with Tyco Int.

Tickers in this article: SWK TYC

NEW YORK (TheDeal) -- Stanley Black & Decker Inc. has a long history of reinventing itself through deals, having transformed the company from a pre-depression era maker of bolts to a $10.2 billion manufacturer of tools, security systems and medical equipment.

But there is reason to believe the New Britain, Conn.-based company's next deal might be driven more by tax policy than by product expansion. And that deal could also involve a combination with Switzerland-based Tyco International Ltd.

Stanley shares fell 0.1% on Tuesday to $77.80 while tyco gained 1.6% to $31.68.

New Britain, Conn.-based Stanley, which since 2009 has spent $4.5 billion for Black & Decker Corp. and another $1.2 billion for Niscayah Group AB, while shedding its hardware and home improvement group to Spectrum Brands Inc. for $1.4 billion, said last year it was curtailing acquisitions to focus on integration.

But the company has a potential tax repatriation issue looming that could keep it from sitting on the sidelines for long. Stanley management at a February Barclays plc event addressed a question on how the firm could continue to fund its dividend in a tax efficient manner as an increasingly large portion of its cash is generated overseas.

The answer given involved M&A, with company president and COO James M. Loree pointing to Switzerland-based Tyco and Eaton Corp. plc -- which gained a Dublin address as part of its $12 billion merger with Cooper Industries plc last year -- as role models to be emulated.

Stanley has a history of looking abroad, having considered reincorporating in Bermuda in 2002 before backtracking due to public outcry. Loree said the company won't try that again, but hinted it could seek out a deal overseas. "I do think you're going to see more foreign purchases of U.S. companies," Loree said. The U.S. management team might run the combined entity, he said, but "it's just a reality that if you're going to create shareholder value and all your money is overseas and you don't want to pay a 25% tax ... that's the other alternative."

Raymond James & Associates Inc. analyst Sam Darkatsh in a note Monday said a merger with Tyco could make the most sense. While stressing that he has no knowledge of any deal talk and calling his speculation "for entertainment purposes only," he said there seems to be only a few possibilities out there for Stanley should it decide to pursue a headquarters-shifting deal.