Bloomberg News

Martin Marietta CFO Estimates Vulcan Cost Savings of Up to $330 Million

March 01, 2012

Martin Marietta Materials Inc. (MLM)’s chief financial officer said a proposed merger with Vulcan Materials Co. (VMC) may yield cost savings of as much as $330 million in three years, $80 million more than estimated in December.

Anne Lloyd, the CFO, testified in court today that she didn’t use any confidential data from Vulcan in calculating the potential savings, which may include 1,100 job cuts. Martin Marietta, based in Raleigh, North Carolina, is pursuing a hostile acquisition of Birmingham, Alabama-based Vulcan originally valued at $4.7 billion. Vulcan has rejected the offer as inadequate.

Martin Marietta “has remained profitable” by using a technique called “Martinizing” to compare its cost structure to those of dozens of companies it considered buying, Lloyd told Delaware Chancery Court Judge Leo Strine Jr. today as a trial over the Vulcan bid entered a third day in Wilmington.

Martin Marietta sued on Dec. 12, the same day it made the hostile bid, in a preemptive move to get the court to rule that the offer wasn’t prohibited by a May 2010 confidentiality agreement between the companies. Vulcan has countersued.

Strine must decide if the stock solicitation is contractually valid. The combination would create the world’s largest producer of sand, gravel and crushed stone.

Don James, chairman of Vulcan, told Strine in earlier testimony that he proposed a friendly “merger of equals” in 2010 and that talks foundered before Martin Marietta Chief Executive Officer Ward Nye disclosed the hostile bid.

Cost Savings

Vulcan contends the companies had an agreement not to reveal the existence of merger talks or release confidential information. Data used by Martin Marietta to evaluate Vulcan’s operations, including costs of goods sold, executive salaries and employee productivity, came from Martin Marietta or public documents, Lloyd said.

Vulcan’s general counsel, Robert A. Wason IV, testified that he helped draft a non-disclosure agreement for officials of the companies, and there were no specific promises on either side about not pursuing a hostile takeover.

Martin Marietta has offered to exchange half a share for each share of Vulcan and pay a quarterly dividend equal to 20 cents a Vulcan share. Vulcan is forecast to lose $48 million this year, according to data compiled by Bloomberg News.

Board Seats

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.

Martin Marietta fell 17 cents to $85.70 in New York Stock Exchange composite trading at 3:17 p.m. Vulcan declined 1.3 percent to $44.

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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