Tuesday, November 03, 2009

Stanley and Black & Decker Merge

One merger and one acquisition are in the business news this morning.

The merger is perhaps the less exciting of the two, but, for me, the more interesting.

I'll make some observations about Warren Buffett's just-breaking news that his Berkshire Hathaway has purchased the rest of railroad Burlington Northern Santa Fe for cash and stock.

Regarding the Stanley-Black & Decker merger, it's a small but interesting validation of Schumpeterian dynamics.

The nearby 2- and 5-year charts of the two companies' equities prices, and the S&P500 Index, show that both have been uninspiring for the period.
Black&Decker, the larger firm, has done far worse than Stanley. Stanley managed to slightly outperform the index over the past 2 years, and stay even with it over 5. In contrast, B&D has trailed over both timeframes, with a far deeper plunge earlier this year.

With the last decade's runup in housing activity, both firms' equities, as displayed in the third chart, rose nicely. Ironically, though, not as robustly as from the mid-1980s to the late 1990s, when the technology bubble collapse affected the entire US economy for a few years. Over this nearly-25 year period, B&D has always been managed less-well, judging by the price movements relative to the S&P. True, these charts don't reflect dividends, but I'm guessing that, at worst, B&D had similar policies to those of Stanley Works.
In any case, B&D has a long history of much bigger equity price swings than Stanley. With the recent collapse in housing activity, it's understandable that now is a good time for B&D's shareholders to get Stanley Works' management running their assets. I don't know of that many cases in which you can see two competitors so differently managed, and one finally throwing in the towel and merging with the other.
With the Craftsman brand still under the struggling Sears umbrella, this certainly seems to clear things up in the competitive marketplace for the newly-merged firm. The CEOs of both are on record as stating they have little competitive overlap, and perhaps that is true. But Both clearly advertise to the homeowner, so you have to wonder.
By simple math, there are only two truly national home tool marketers remaining with this deal- Craftsman and Stanley. And Stanley will be better-positioned for continued new product evolution and development.

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