CHICAGO — Tool makers Stanley Works and Black & Decker are betting that together they can wring out more profit and better position themselves for a housing market recovery than they could apart.

Battered by the housing slump and economic recession, two of the industry's most iconic brands are now merging. Stanley Works on Monday agreed to pay $3.46 billion for rival Black & Decker in an all-stock deal that will create the nation's largest tool maker.

The deal will cut costs by $350 million within three years, likely in part through job cuts, and grow earnings per share by $1 within three years, the companies said. Executives said most of the savings will come from reducing corporate overhead and consolidating business units and manufacturing, distribution and purchasing.

There is little overlap in the companies' products, said James C. Lucas, managing director of Janney Montgomery Scott. Stanley is a leader in consumer and industrial hand tools and security, while Black & Decker holds a top position in power tools.

Stanley Works' brands include its Stanley tools line and FatMax, Bostitch and Mac Tools, which are used on cars. In addition to its namesake line, Black & Decker owns DeWalt, Porter-Cable, Kwikset and Baldwin brands, which are popular with both consumers and professionals.

"This is a unique opportunity to bring together two great companies, each with first-rate brands, and provide enhanced opportunities to generate superior returns as we build on this new, larger platform," Stanley Chairman John F. Lundgren, who will be president and CEO, said in a statement. Black & Decker Chairman, President and CEO Nolan D. Archbald will serve as executive chairman for three years.

The deal comes after both companies have slashed jobs and cut other costs as the housing slump and global economic downturn reduced demand in the professional builder, industrial and do-it-yourself markets. Black & Decker last month said it expects demand for its industrial and consumer-power tools to continue to stabilize, but does not expect a near-term rebound.