Vulcan: Martin Marietta ‘substantially undervalues’ us
After a proposed hostile takeover of the nation’s top aggregate producer, the company rejects the offer.
By Tina Grady Barbaccia
Raleigh, N.C.-based Martin Marietta Materials has approached Birmingham, Ala.-based Vulcan Materials Co., the nation’s top aggregate producer, with an unsolicited offer to take over the company with a stock-for-stock transaction, but at Aggregates Manager press time, Vulcan had rejected the offer saying that it “substantially undervalues” the company.
However, if this hostile takeover were approved, it would create a U.S.-based company that, as of Dec. 9, had a combined market capitalization of $7.7 billion and a combined total enterprise value of $11.4 billion, according to Martin Marietta. The combined mineral reserves of both companies would be 28 billion tons.
Martin Marietta President and CEO Ward Nye, Aggregates Manager’s 2006 AggMan of the Year, says the combination of both companies “is a compelling opportunity for both companies’ shareholders, customers, employees, and the communities we serve.”
Nye notes that by bringing together what he calls “complementary assets,” it produces the opportunity to create a global aggregates leader. Together, he says, Vulcan and Martin Marietta could achieve cost synergies of $200 million to $250 million.
“We also intend to maintain the dividend of the combined company at Martin Marietta’s current rate of $1.60 per Martin Marietta share annually, or the equivalent of 80 cents per Vulcan share annually, based on the proposed exchange ratio,” Nye said in a written statement. “This dividend rate is 20 times Vulcan’s current level.”
The proposal, including the exchange offer, is unanimously supported by Martin Marietta’s board of directors. Under the terms of the exchange offer, each outstanding share of Vulcan would 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, and 18 percent to the average exchange ratio based on the closing share prices for Vulcan and Marietta during the 30-day period ended Dec. 9, 2011.
Nye says Martin Marietta is bringing the proposal directly to Vulcan shareholders after the company stopped participating in private discussions toward a negotiated transaction, which began more than a year ago.
In a Dec. 14 Bloomberg report, Vulcan Materials Co. was reported as possibly trying to “squeeze” $1 billion more out of a takeover bid that’s already the most expensive for a U.S. building material company.
Martin Marietta Materials Inc.’s $4.8 billion hostile offer for Vulcan values the largest American producer of crushed stone at 24 times earnings before interest, taxes, depreciation, and amortization, according to the Bloomberg report. The report also notes that the multiple is the highest on record for an acquisition greater than $500 million of a U.S. maker of building materials such as cement, according to Bloomberg-compiled data, which includes net debt.
Martin Marietta’s proposal contemplates directors from both companies serving on the combined company’s board. It also proposes that Vulcan Chairman and CEO Donald M. James serve as chairman of the board and that Nye serve as president and CEO. Executives from both companies would serve on the management team, according to the proposal.
The combined company would be headquartered in Raleigh, N.C., and maintain a major presence in Birmingham, Ala.
After the initial takeover offer, Vulcan said its board of directors would “carefully review the proposal and determine the course of action that it believes is in the best interests of the company and its shareholders.” Shareholders were originally advised not to take any action, pending the review of the proposed exchange offer by the company’s board.
However, on Dec. 22, any potential for negotiations fell apart after the Vulcan board of directors consulted with its independent financial and legal advisers (Goldman, Sachs & Co. is acting as financial advisor and Wachtell, Lipton, Rosen & Katz is acting as legal advisor to Vulcan Materials). Vulcan’s board of directors unanimously determined that the Martin Marietta Materials, Inc.’s exchange offer to acquire Vulcan at a fixed exchange ratio of 0.50 shares of Martin Marietta common stock for each Vulcan common share is “inadequate and not in the best interests of Vulcan and its shareholders.”