Vulcan Materials Co. (VMC) Chairman Don James first proposed a friendly combination with Martin Marietta Materials Inc. (MLM) before it surprised him in an e-mail with a $4.7 billion hostile takeover bid, he testified as a trial over the proposed deal started.
James has been trying to stave off an offer from Martin Marietta that could create the world’s largest producer of sand, gravel and crushed stone, and Delaware Chancery Court Judge Leo Strine Jr. must decide whether the solicitation is contractually valid.
In discussions with Martin Marietta Chief Executive Officer Ward Nye in 2010, James today told the judge “we wanted a friendly, consensual transaction” and a “merger of equals.” He said negotiations stalled at times on questions of regulatory approval, buyout consideration, potential financial savings in a merger and who would run the company.
Martin Marietta, based in Raleigh, North Carolina, offered on Dec. 12 to exchange half a share for each share of Birmingham, Alabama-based Vulcan and pay a quarterly dividend equal to 20 cents a Vulcan share to partly restore the dividend cut to 1 cent last year.
“I couldn’t believe it at first,” when Martin Marietta informed Vulcan of the surprise hostile bid in an e-mail, James told Strine. “I was completely distraught.”
Vulcan contends a 2010 agreement between the companies from previous merger talks doesn’t allow Martin Marietta’s offer to buy Vulcan’s public shares and solicit votes for five nominees for its board, according to court papers.
Martin Marietta filed the lawsuit in December seeking a court ruling that it didn’t violate the agreement with Vulcan.
“The non-disclosure agreement does not contain a standstill provision or other limitation on each party’s right to make public offers to the other’s stockholders,” Martin Marietta’s lawyers said in court papers.
“Vulcan ceased participating in private discussions toward a negotiated transaction, compelling Martin Marietta to present its proposals directly to Vulcan’s stockholders,” according to the complaint.
Vulcan is forecast to lose $48 million this year, according to the average of 14 analyst estimates compiled by Bloomberg. Martin Marietta has reported profits since at least 1992, and earnings this year are forecast to be $114 million, according to the average of 15 estimates.
Vulcan claims Martin Marietta obtained “highly sensitive, material, nonpublic and confidential information,” according to a Dec. 22 statement in which the company formally rejected the bid.
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.
“We continue to recommend that shareholders not tender any shares to Martin Marietta,” James said in a Feb. 23 letter to employees.
James said he didn’t want information about merger talks to leak to the public because customers might be concerned about supply disruptions if the company was “in play” and Vulcan executives would become distracted. He also said costly litigation might follow and competitors would be “licking their chops” at the prospect of available assets.
Under cross-examination, James was asked whether Vulcan lost business because of the dispute. “Not that I’m aware of,” he said.
James told the judge that after the hostile bid two large shareholders, Capital Guardian Trust Co. and Primecap Management, dumped shares. Primecap sold 5.23 million shares and Capital Guardian sold 1.04 million shares, according to Bloomberg data.
Martin Marietta fell 50 cents to $86.86 in New York Stock Exchange composite trading at 4:15 p.m., which gives the deal a value of $43.43 a share. Vulcan declined 1.33 percent to $45.36.
The case is Martin Marietta Materials v. Vulcan Materials, CA7102, Delaware Chancery Court (Wilmington).
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