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Martin Marietta makes hostile bid for Vulcan

by Lou Whiteman | Published December 12, 2011 at 12:40 PM

Construction aggregates provider Martin Marietta Materials Inc. on Monday, Dec. 12, launched a hostile $4.7 billion offer for Vulcan Materials Co., going public with a bid for its larger rival after the two sides were unable to negotiate a consensual deal.

Martin Marietta is proposing to exchange 0.50 of its shares for each share of Vulcan, for total consideration of $36.69 per share based on Friday's closing price. The bid provides a premium of about 9% to Vulcan's Friday close.

Both companies provide materials including gravel, crushed stone and sand to construction and industrial users. Vulcan, with a market capitalization of $4.13 billion, generated Ebitda of $307.3 million on sales of $2.54 billion in the 12 months ending Sept. 30. Martin Marietta boasts a market capitalization of $3.27 billion and recorded Ebitda of $352.42 million on sales of just $1.81 billion during the same time period.

Raleigh, N.C.-based Martin Marietta also said it intends to submit five nominees to Birmingham, Ala.-based Vulcan's board. It has filed suit in Delaware's Chancery Court and at a state court in New Jersey "in furtherance of its effort to ensure that Vulcan's shareholders have an opportunity to assess directly" the proposal.

Martin Marietta CEO Ward Nye said his company is going directly to shareholders more than a year and a half after the two companies first held discussions about a potential deal. He said the combination a merger would create a global leader in aggregates.

"The combined company will have one of the industry's strongest balance sheets and, as we achieve expected synergies of $200 [million] to $250 million and continue to adhere to Martin Marietta's strict operational and financial discipline, the company will be well positioned to pursue a wide range of attractive growth opportunities and to continue delivering value to shareholders," Nye said.

The new entity would have an enterprise value of $11.4 billion, according to Martin Marietta, and have total mineral reserves of about 28 billion tons.

The executive in a letter to Vulcan argued that "the fragile state of the U.S. economy" and "uncertainty surrounding government spending on infrastructure projects" were reasons to combine, noting that the deal would establish "a U.S.-based company that is a global leader of our industry."

The proposal calls for a split board between the two companies, and for Vulcan chairman and CEO Don James to become chairman of the combined firm's board with Nye remaining as CEO.

Under the proposal the company would be based in Raleigh and maintain a major presence in Birmingham.

Martin Marietta said that it would prefer to negotiate a friendly transaction, urging Vulcan to meet with the company and advisers Deutsche Bank Securities Inc., J.P. Morgan Securities LLC's Chris Gallea, Chris Ventresca, Mike Macakanja and Isabelle Aussourd and Peter Atkins at Skadden, Arps, Slate, Meagher & Flom LLP to discuss a definitive agreement.

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