Buffett's workin' on the railroad – buys Burlington North Santa Fe

By Money Matters Editors

It’s November, and suddenly deals are popping up all over.

First New Britain, Conn.-based tool maker the Stanley Works (SWK) announced it would buy power tool expert Black and Decker (BDK), in an all-stock deal for $4.5 billion.

Stanley sees the deal as $1 accretive to earnings per share within three years.

Meanwhile, Black & Decker shareholders will receive a 22.1% premium to BDK’s closing price as of Friday, October 30, 2009 of $47.22, or roughly $57.65 per share.

Further, Money Matters likes Stanley Works in the 3-5 year period ahead. Stanley has a demonstrated business model, battle-tested management, and a global distribution network that rivals Procter & Gamble, (PG). Stanley shares could trade at $70 by the end of 2010, or about that level on a split-adjusted basis, if the company splits shares, which it has a history of doing.

Also, Warren Buffett’s Berkshire Hathaway (BRK.A) agreed to buy the remainder of Burlington Northern Santa Fe (BNI) that the company doesn’t already own, for $100 per share.

Buffett is obviously bullish on U.S. railroads, and Money Matters agrees: given a congested highway network – the U.S. highway system is inadequate -  railroads in many cases offer a cheaper, faster transport option for freight than trucks.

In addition, as more public officials and citizens recognize the impact of burning fossils on global warming, attitudes toward the rails will become even more-favorable. Under most circumstances trains can transport goods and people for substantially less fossil fuel per pound than trucks.

The relevance for you, the investor? Obviously, if you’re an SWK or BNI shareholder, you’re in the chips. More broadly, the return of deals, albeit at a modest pace, is a sign that corporations are feeling more confident about the recovery, which is good to see.

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Disclosure: Money Matters Editors and staff do not own shares in stocks they review.