Vulcan: Martin Marietta ‘substantially undervalues’ us


February 16, 2012

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.”

James noted in a Vulcan press release: “The offer, made at a low point in the economic and industry cycle, does not come close to appropriately compensating shareholders for Vulcan’s strategic locations and leading positions in high-growth markets, unparalleled reserve base, and proven ability to deliver rapid profitability and cash-flow growth in economic recoveries. Martin Marietta is obviously trying to take value that rightly belongs wholly to Vulcan shareholders.”

The press release says that the Vulcan Board concluded the company is much better positioned to capitalize on economic recovery than Martin Marietta. It noted that Vulcan has a stronger presence in the most attractive U.S. markets and a significantly more profitable aggregates business. It also noted that Martin Marietta’s offer carries significant execution risk, further eroding the value of the offer. While the company had explored a possible combination with Martin Marietta in the past, it ultimately determined that a combination was not in the best interests of the company or its shareholders.

To read about Vulcan’s rationale for rejecting the offer, use

this shortened link, An investor presentation to Vulcan shareholders, released Jan. 5, 2012, is available at, a website established to provide

information about the company’s response to Martin Marietta’s

offer. For webcast of Martin Marietta’s response, go to



Judge rules in Metso Minerals’favor in Terex patent dispute

A federal court has affirmed a jury’s decision in favor of Metso Minerals’ patent dispute against Terex Corp. and two of its distributors, Emerald Equipment Systems, Inc. and Powerscreen New York Inc.

On Dec. 9, 2011, the Federal District Court for the Eastern District of New York confirmed a jury’s verdict of a year earlier, which was reached during a seven-week trial. In December 2010, a jury awarded Metso Minerals, Inc. $15.8 million in damages for patent infringement nearly five years after the Metso Minerals, Inc. v. Powerscreen International Distribution Limited et al. lawsuit began in March 2006.

The jury verdict had held that the defendants willfully infringed Metso’s U.S. patent that was directed to mobile screening and crushing machines. In the court’s decision, each of the defendants’ four motions to overturn the jury’s verdict and/or for a new trial were dismissed, according to Cozen O’Connor, the law firm representing the plaintiff.

The court affirmed “the jury’s verdict that Metso’s patent was infringed, that it was infringed willfully, that the patent was not obvious, that the patent was not unenforceable due to alleged inequitable conduct, and that Metso had not delayed commencing its lawsuit.”

The court also doubled the primary damages award (raising it to $31.6 million), ordered an accounting for supplemental damages for October 2007 to the present that were not included in the jury’s damages award, and awarded pre- and post-judgment interest. In July 2011, the court issued an order permanently enjoining the defendants from marketing their 11 infringing mobile screeners. Cozen O’Connor is estimating after all of the accounting is completed, the final amount of the judgment in this case could reach $50 million.

Michael Stuart, a litigator at Cozen O’Connor and lead counsel for Metso Minerals in this case, tells Aggregates Manager that Terex’s dissent was that “the judge did not interpret the patent correctly.”

On Metso’s equipment, the track of the conveyor does not stick out when the arms of the conveyor are folded, which is a patent requirement, according to Stuart. However, when the arms of the conveyor are folded on Terex’s machine, the track sticks out beyond it. Terex used this as its primary defense in the case.

The jury’s decision and the judge’s reaffirmation of the most recent decision now opens the door to further patent infringement lawsuits in the mining and construction industries, Stuart says. He says he believes that three other companies – Extec, Fintec (owned by Sandvik), and Keestrac – are violating Metso Minerals’ patent.

“They have been informed a few years ago they should cease and desist,” Stuart says. “As soon as our lawsuit is done, we will be weighing our options.” However, he says, a decision has not yet been made whether to pursue legal action.

At Aggregates Manager press time, Terex told our publication that it was planning to file its appeal with the Court of Appeals for the Federal Circuit specialized court for patent appeals on or before the Jan. 8, 2012, deadline.

Tom Gelston, vice president of investor relations for Terex Corp., says the lawsuit is an “ongoing, complex case.” He notes that Terex feels that the jury decision “was contrary to both the law and the facts.” Terex says it is important to note that the judgment and injunction only relate to certain models of Powerscreen mobile screening plants with the alleged infringing folding side conveyor design that were sold in the United States.

According to Terex, these models have been updated with Powerscreen’s new proprietary S range of conveyors, which the company says has better stockpiling capability than previous models.

Because the case is still open, Gelston says Terex is limiting its comments, but is confident that “we [Terex] will ultimately prevail.”


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