Vulcan Rises After Court Delays Martin Marietta Bid
Vulcan, the U.S.’s largest producer of gravel and sand, rose 0.2 percent to $41.47 at the close in New York after earlier dropping as much as 4.3 percent. It’s the first increase in the stock since May 1. Martin Marietta’s shares rose 0.5 percent to $79.80.
Delaware Chancery Court Judge Leo Strine Jr. ruled on May 4 after markets closed that Martin Marietta breached a confidentiality agreement in its Dec. 12 offer. The decision, which the company said today it will appeal, keeps Martin Marietta from proposing four board candidates at Birmingham, Alabama-based Vulcan’s June 1 shareholder meeting as part of a strategy to gain support for the bid.
“There are some people who think the deal is going to go through and they view it as an opportunity,” said Kathryn Thompson, an analyst at Thompson Research Group in Nashville, Tennessee. Thompson has a hold recommendation on Vulcan.
Vulcan had jumped 15 percent on Dec. 12 when Martin Marietta, the second-largest producer of gravel and sand in the U.S., offered to swap 0.5 share of its stock for each Vulcan share in a transaction valued at $4.7 billion at that time. Vulcan’s board rejected the offer as too low.
The court ruling will help Vulcan’s management fend off the bid, said Robert Wetenhall, an analyst with RBC Capital Markets LLC in New York, in a telephone interview.
“The probability of a successful transaction is becoming increasingly remote because of the forcefully worded opinion from Judge Strine,” said Wetenhall, who has a sector perform rating on Vulcan, the equivalent of a hold recommendation. “The takeover premium embedded in Vulcan’s stock will tend to dissipate.”
Martin Marietta Chief Executive Officer Ward Nye and Don James, Vulcan’s CEO, began friendly merger talks in 2010. James called off the talks last year as the two disagreed over cost savings, the potential amount of assets the U.S. Justice Department would require to be sold, and who would be chief at the combined company.
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 when they were in merger talks. Vulcan countersued.
The four-month delay will negate Martin Marietta’s strategy of proving shareholder support for its offer by getting four nominees elected to Vulcan’s 10-member board. The ruling’s language, following a four-day trial that began on Feb. 28, makes it unlikely Martin Marietta will win the appeal, Wetenhall said.
In his opinion, Judge Strine noted the “pervasiveness” of Martin Marietta’s breaches of the confidentiality agreement and said an argument could be made to apply an injunction longer than four months. Martin Marietta disclosed information beyond what was legally required in its S-4 filing to the Securities and Exchange Commission in December, to promote the transaction by casting Vulcan’s management and board “in a bad light,” the judge said.
Strine agreed with Vulcan that Martin Marietta used confidential information in the formulation of its hostile bid and said Martin Marietta “cloaked much of its decision-making process in secrecy” because Nye invoked attorney-client privilege to decline to answer some questions during trial.
“Rewarding a breaching party like Martin Marietta would encourage other parties to end-run contractual pre-disclosure procedures,” Strine wrote.
Martin Marietta, based in Raleigh, North Carolina, said in a statement today that it will continue with its bid, which it said has “undeniable strategic merits.” Vulcan, in a May 4 statement, applauded the ruling and said it will continue with a program to cut costs and sell assets.
The case is Martin Marietta Materials v. Vulcan Materials, CA7102, Delaware Chancery Court (Wilmington).
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