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Martin Marietta Makes Play for Vulcan


The aggregates industry’s number-two stone producer, Martin Marietta Materials Inc., has delivered a proposal to Vulcan Materials Co., the industry’s number-one producer, and commenced “an exchange offer to effect a business combination with Vulcan” that would create a U.S.-based company that is the global leader in construction aggregates with a footprint reaching across North America.

Vulcan has about 8,000 workers at 319 production and related facilities. Last year it shipped 147.6 million tons of aggregates and its stone reserves total 14.7 billion tons. In comparison, Martin Marietta employs about 4,500 people at more than 285 quarries and distribution facilities. Last year it shipped 130 million tons of materials and its reserves total over 13 billion tons. As of Dec. 9, 2011, the combined market capitalization was $7.7 billion and the combined total enterprise value was $11.4 billion. The combined mineral reserves of the two companies would be almost 28 billion tons.

Ward Nye, Martin Marietta’s president and chief executive officer said, “The combination of Martin Marietta and Vulcan is a compelling opportunity for both companies’ shareholders, customers, employees and the communities we serve. By bringing together our highly complementary assets, we have the opportunity to create the global leader in aggregates, led by the best team in the industry, drawn from both companies. The combined company will have one of the industry’s strongest balance sheets and, as we achieve expected synergies of $200 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.

“We also intend to maintain the dividend for the combined company at Martin Marietta's current rate of $1.60 per Martin Marietta share annually, or the equivalent of $0.80 per Vulcan share annually, based on the proposed exchange ratio. This dividend rate is 20 times Vulcan’s current level,” said Nye.

The proposal, including the exchange offer, has the unanimous support of the Martin Marietta Board of Directors. Under the terms of the exchange offer, each outstanding share of Vulcan will be exchanged for 0.50 Martin Marietta shares. The offer represents a premium for Vulcan shareholders of 15 percent to the average exchange ratio based on the closing share prices for Vulcan and Martin Marietta during the 10-day period ended Dec. 9, 2011, and 18 percent to the average exchange ratio based on the closing share prices for Vulcan and Martin Marietta during the 30-day period ended Dec. 9, 2011.

“We are bringing our proposal directly to Vulcan’s shareholders after Vulcan ceased participating in private discussions toward a negotiated transaction, which commenced over a year and a half ago,” Nye concluded.

Martin Marietta’s proposal contemplates directors from both Martin Marietta and Vulcan serving on the combined company's Board. Furthermore, it proposes Don James, Vulcan’s chairman and chief executive officer, serve as chairman of the board, and that Ward Nye serve as president and chief executive officer, with executives from both companies on the senior management team. Under the proposal, the combined company would be headquartered in Raleigh, N.C., where Martin Marietta is based, and maintain a major presence in Birmingham, Ala., where Vulcan is based.

“It will be interesting to see if the FTC allows that deal to go through,” said George Spilka of George Spilka & Associates, a Pittsburgh-based M&A specialist. “When you’re talking about a merger between a number-one and a number-two, that is often viewed as anti-competitive.”

Other market analysts noted that the lack of major market overlap would work in favor of the merger, and efficiencies of scale would result in lower energy costs for the combined companies – a particular cost drain to the bottom line of both.

Vulcan Materials Co. confirmed that Martin Marietta Materials Inc. “has commenced an unsolicited exchange offer to acquire all outstanding common shares of Vulcan Materials Company at a fixed exchange ratio of 0.50 shares of Martin Marietta Materials common stock for each share of Vulcan Materials common stock.”

“Consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, the board of directors of Vulcan Materials will carefully review the proposal and determine the course of action that it believes is in the best interests of the Company and its shareholders,” the company said in a statement. “The board intends to advise shareholders of its recommendation regarding the exchange offer within 10 business days by making available to shareholders and filing with the Securities and Exchange Commission a solicitation/recommendation statement on Schedule 14D-9. Vulcan Materials shareholders are advised to take no action at this time pending the review of the proposed exchange offer by the Vulcan Materials' Board.”

Goldman, Sachs & Co. is acting as financial advisor and Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Vulcan Materials. Martin Marietta's financial advisors in connection with the proposed transaction are Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC, and its legal counsel is Skadden, Arps, Slate, Meagher & Flom LLP.

As noted in a public letter Nye wrote to James, Martin Marietta is taking additional steps to advance the transaction, including:

  • Martin Marietta delivered to Vulcan with the Martin Marietta proposal letter a draft transaction agreement providing for the proposed business combination.
  • Martin Marietta commenced lawsuits in Delaware and in New Jersey seeking to ensure that Vulcan's shareholders have the opportunity to directly assess Martin Marietta's offer.
  • Martin Marietta intends to submit the names of five nominees for election as independent directors at Vulcan's 2012 annual meeting.

The offering documents (including a preliminary prospectus/offer to exchange and a related letter of transmittal) describing the exchange offer and the means for Vulcan shareholders to tender their shares of Vulcan common stock into the exchange offer have been filed with the Securities and Exchange Commission (SEC) and will be delivered to Vulcan shareholders.

These documents can also be found on the SEC’s website at www.sec.gov or at www.aggregatesleader.com, a website that Martin Marietta has launched to provide details regarding its proposal. If any Vulcan shareholder has questions regarding the exchange offer or would like to request any offering documents, the shareholder should contact Martin Marietta’s information agent for the exchange offer, Morrow & Co., LLC, toll-free at 877-757-5404.

Completion of the exchange offer is subject to, among other conditions, entry into a definitive merger agreement with Vulcan (which would provide for, among other things, a second-step merger to acquire any outstanding shares of Vulcan common stock not exchanged pursuant to the exchange offer). Consummation of the offer is also subject to other conditions, including receipt of regulatory approvals. The exchange offer is scheduled to expire at 5:00 p.m., New York City Time on May 18, 2012, unless it is extended.