It's been a busy morning with several big merger deals coming down. Far and away the biggest deal of the morning comes from Warren Buffett and his company, Berkshire Hathaway. It will pay $44 billion in stock and cash to purchase the 77.4 percent of Burlington Northern Santa Fe railroads that it doesn't already own. In the announcement of the deal, Buffett said, "It's an all-in wager on the economic future of the United States. I love these bets." He went on to say, "America must grow and prosper for railroads to do well."
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One of the interesting things about the deal is the announcement that Berkshire Hathaway will do something that Buffett had always suggested would never happen: split the stock. Buffett fans know that there are two classes of Berkshire stock: the A shares trade for more than $100,000 a share. Several years ago the company created B shares that trade for 1/30th of the A shares, putting the current price at around $3,300. Today it was announced that the Berkshire board of directors will consider -- and certainly approve -- a 50-1 stock split for the B shares. That will bring the price down to about $66. This will allow the company to have stock available for the Burlington Northern merger, allowing them to "accommodate even the smallest holdings of BNSF shares that elect a tax-free exchange." However, it also will make the share price more available to average investors who just couldn't pay $3,300 -- let alone $100,000 -- for Berkshire shares. No date has been set for the vote by directors but it should happen soon.
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Another merger deal announced after the close yesterday is also a bet that the economy will pick up strength. Stanley Works will pay $4.5 billion to purchase Black & Decker. The two tool companies have reportedly been in merger talks that go back more than 30 years but got serious just a few months ago. Stanley Works was founded in 1843 and Black & Decker roots go back to 1910. "Joining these two companies together creates a powerful engine for growth, both as markets around the world recover and over the long-term," said John Lundgren, CEO of Stanley Works.
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The third deal of the day involves two coffee companies. Peet's Coffee and Tea will pay $213 million to acquire Diedrich Coffee. Diedrich is based in Orange County and dates back to 1916 when Charlotte Diedrich inherited a coffee plantation in Costa Rica. At one time it operated 40 coffee shops but sold them to Starbucks a few years ago. It has focused on its online operations as well as the roasting business. It also operates Gloria Jean's coffee outlets in shopping malls.
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According to BDO Seidman, 60 percent of chief marketing officers at the top 100 retailers say they expect to see a meaningful turnaround in the economy by the end of the first quarter of 2010, with 40 percent expecting it in the fourth quarter of 2009. They also expect comparable store sales to increase by 2.6 percent during the current holiday shopping season.
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The second Sonic drive-in restaurant in San Diego County opened in Vista yesterday. The first store, in Santee, opened earlier this year. If you are from most other parts of the country you already may know Sonic and its quick-service operations. It's just like the old days, you can pull into a parking space and order through a speaker and a rollerskating carhop will bring your food to you on a tray that attaches to your window. When you are finished, they take it away. It's sort of like A&W used to be. There are more than 3,600 Sonic restaurants across the country. The opening of the Vista restaurant comes just two weeks after the passing of the company's founder, Troy Smith. He opened his first location in 1953 in Shawnee, Okla., calling it Top Hat and offering "service at the speed of sound." The name Sonic soon followed and the company now has locations in 42 states.
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