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NEW YORK (CNNMoney.com) -- In a major consolidation of the tool industry, Stanley Works agreed to acquire Black & Decker in a $4.5 billion all-stock deal, the companies said Monday.

Under the terms of the deal, Black & Decker (BDK, Fortune 500) shareholders will receive 1.275 shares of Stanley Works (SWK) common stock for each B&D share. That's a 22.1% premium to Black & Decker's closing share price on Friday.

The deal is expected to close in early 2010, and the new company will be called Stanley Black & Decker.

Black & Decker shares rose almost 20% in after-hours trading, while Stanley shares jumped 2.6%.

Stanley, which is a leader in hand tools, owns brand names including FatMax, Bostitch and Mac Tools. Last month, Stanley raised its 2009 earnings outlook to $2.84 to $2.94 per share from its previous prediction of $2.34 to $2.84 per share.

Black & Decker, known for its power tools, owns Kwikset, Baldwin and Price Pfister, among others.

"Joining these two companies together creates a powerful engine for growth, both as markets around the world recover and over the long-term," said Stanley chief executive John Lundgren, in a statement.

Lundgren will become president and CEO of the new company.

The merger will save about $350 million in costs over the next three years, the statement said.

Once the deal is complete, Stanley shareholders will own approximately 50.5% of the equity of the combined company and Black & Decker shareholders will own about 49.5%. Six members from Black & Decker's board of directors will join the nine current Stanley members.