24/7 Wall St.

The tool sector for builders and home repair is about to get a lot smaller for investors looking for diversification of company choices to invest in.  The Stanley Works (NYSE: SWK) and The Black & Decker Corporation (NYSE: BDK) have proposed a merger which would unite the brands.  The companies see accretion to earnings per share of about $1.00 per share by year three with some $350 million in cost synergies.  This deal is a stock for stock merger where Black & Decker shareholders would receive a fixed shares ratio of 1.275 shares Of Stanley common stock per 1 share held of Black & Decker common stock.

The two companies call this a definitive merger agreement to create Stanley Black & Decker, which would become an $8.4 billion global industrial leader in an all-stock transaction valued at about $4.5 billion.

The transaction has already been approved by the boards of directors of both companies, and the deal would be expected to be completed in the first half of 2010.  The terms call for an implied premium of 22.1% to Black & Decker’s share price as of Friday, October 30, 2009. After the closing, Stanley shareholders would own about 50.5% of the equity of the combined company.

Also noted in management is that the nine members of the current Stanley board of directors will be joined by six new members from Black & Decker’s board of directors.  John F. Lundgren, Chairman and CEO of Stanley, will be President and CEO of the combined company.  Nolan Archibald, Chairman, President, and CEO of Black & Decker will become executive Chairman of the combined company for a period of three years.

Stanley was founded in 1843 is a diversified industrial company with hand tools and strong construction and do-it-yourself, security and industrial businesses with well-known brand names such as Stanley, FatMax, Bostitch, Facom, Proto, Mac Tools, Sonitrol, Stanley Security Solutions, Best, and Vidmar.

Black & Decker has roots dating to 1910 and brings in power tools and a diverse product offering under the brands of Black & Decker, DeWalt, Porter-Cable, Emhart Teknologies, Kwikset, Baldwin and Price Pfister.

This is effectively an acquisition by Stanley for Black & Decker.  Both companies are trading up on the news, with Black & Decker up 20% at $56.82 and Stanley Works up 2.3% at $46.20.  Before the buyout was announced, the market cap of Stanley was $3.2 billion and the market cap of Black & Decker was $2.8 billion.  With these companies being under $5 billion each, it is hard to imagine that antitrust regulation would come down too hard on the companies.

The merger only includes these two companies, but it has shares of Snap-On Inc. (NYSE: SNA) trading up 1.4% at $36.60 in after-hours trading.  Its market cap is $2.08 billion as of the close.

Jon C. Ogg