Bloomberg News

Vulcan, Martin Marietta to Face Off in Trial

February 27, 2012

Vulcan Materials Co. (VMC) and hostile suitor Martin Marietta Materials Inc. (MLM) face off in Delaware Chancery Court tomorrow in a trial over a $4.7 billion takeover that would create the world’s largest producer of sand, gravel and crushed stone.

The court’s chief judge, Leo Strine Jr., must decide whether a 2010 agreement between the companies prohibits Martin Marietta from offering to buy Vulcan’s public shares and soliciting votes for five nominees for its board, according to court papers. Strine also has to say whether the agreement limits litigation to courts in Delaware. Martin Marietta filed the case, asking the court to declare that it hasn’t violated any agreement with Vulcan.

Martin Marietta, based in Raleigh, North Carolina, offered on Dec. 12 to exchange half a share for each share of Vulcan and pay a quarterly dividend equal to 20 cents a Vulcan share to partly restore the dividend cut to 1 cent last year.

Vulcan Chairman Don James has said Martin Marietta is trying to take advantage of a construction recession to buy Vulcan with a “very low-ball” offer. Vulcan has been saddled with debt and losses after it paid $4.2 billion for Florida Rock Industries Inc. in 2007 just before the industry slumped.

Vulcan, based in Birmingham, Alabama, posted net losses in the past two years and is forecast to lose $48 million this year, according to Bloomberg data. Martin Marietta has reported profits since at least 1992, and earnings this year are forecast to be $114 million.

Martin Marietta CEO Ward Nye and James began merger talks in April 2010 and reached the point of studying transaction structures and proposing names for the combined company, Martin Marietta said in a filing to the U.S. Securities and Exchange Commission.

End of Talks

James told the Vulcan board July 8 that the merger negotiations had ceased, according to a company filing. The discussions broke down over the amount of cost savings and who would run the combined company, according to the Martin Marietta filing.

Vulcan called the hostile offer illegal, claiming that Martin Marietta obtained “highly sensitive, material, nonpublic and confidential information” under two agreements, according to a Dec. 22 statement in which the company formally rejected the bid.

Martin Marietta said in a Dec. 22 statement there are no significant regulatory or legal obstacles to completing the transaction.

Martin Marietta has proposed candidates for five Vulcan board seats to be filled at the annual shareholders meeting in May, not enough to control the 11-member board. Vulcan pledged to sell assets for as much as $500 million to reduce debt and cut costs by $155 million to rally shareholder support.

Martin Marietta

“An injunction barring Martin Marietta’s exchange offer and proposal could prevent Vulcan’s stockholders from directly considering their merits,” a lawyer for Martin Marietta, Robert S. Saunders, wrote in its complaint.

Collins J. Seitz Jr., a lawyer representing Vulcan, contends in court papers that Martin Marietta’s bid constitutes an unlawful scheme to seize control of the company.

“Martin Marietta’s conduct constitutes not only breaches of express contractual obligations, but it offends basic principles of business ethics and fair dealing as well,” Seitz wrote.

The Delaware lawsuit is one of at least four being pursued in three states over the deal.

In a case filed Dec. 27 in federal court in Birmingham, KBC Asset Management NV, with more than 44,000 Vulcan shares, contends the offer is a good one in light of poor recent company performance. KBC asked a judge to order meaningful negotiations.

Multiple Cases

Vulcan sued in the same Alabama court Dec. 19 asking a judge to block the takeover. Martin Marietta also sued Vulcan Dec. 12 in Superior Court in Trenton, New Jersey, with allegations similar to those in Delaware. trading

Martin Marietta fell 14 cents to $87.73 Feb. 24 in New York Stock Exchange composite trading, valuing the deal at about $43.87 per share. Vulcan fell 23 cents to $46.17.

The case is Martin Marietta Materials v. Vulcan Materials, CA7102, Delaware Chancery Court (Wilmington).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Thomas Black in Dallas at tblack@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Ed Dufner at edufner@bloomberg.net.


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