Stanley Works buys Black & Decker: A win/win for shareholders

Posted Nov 3rd 2009 3:20PM by Joseph Lazzaro
Filed under: Deals, Black and Decker (BDK), Stocks to Buy

A double win: I'm Reiterating by Buy rating for New Britain,Conn.-based tool maker Stanley Works (NYSE: SWK) after the company announced Monday it will buy Black & Decker Corp. (NYSE: BDK) for $4.5 billion in an all-stock deal.

Stanley, first recommended on February 10, 2009 at a price of $32.88, sees the deal as $1 accretive to earnings per share within three years.

Meanwhile, shareholders of Black & Decker, first recommended on April 17, 2009 at a price of $33.53, will receive a 22.1% premium to BDK's closing price as of Friday, October 30, 2009 of $47.22, or about $57.65 per share. Hence, if you bought BDK in April, that represents a 71.9% gain for owning the stock about six months. Not bad.

Moreover, assuming annual cost savings of $350 million, the First Call FY2009/FY2010 EPS for Stanley Works of $2.58 to $3.06 should prove to be low, assuming the U.S./global economic recoveries continue to strength, and a rebound in construction. As of Tuesday at mid-day, Wall Street appeared to be thinking along those lines: typically the acquirer's stock drops in the days after a purchase is announced, but at mid-day Stanley was up $2.01 to $47.18.

Therefore, moderate-risk investors should feel free to buy a 25% position in SWK now, then another 25% in one month. Sell/Stop Loss: $22.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Stanley Works, SWK