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Martin Marietta’s Hostile Vulcan Bid Backed by Southeastern

Southeastern Asset Management Inc., one of the largest shareholders of both Vulcan Materials Co. and Martin Marietta Materials Inc., endorsed a combination of the two sand and gravel companies amid a takeover fight.

Vulcan rose 2.6 percent to $42.72 at the close in New York after Southeastern said in a filing today it supports Martin Marietta’s hostile bid. Martin Marietta, which rose 0.3 percent to $80.90, offered on Dec. 12 to exchange 0.5 share for each Vulcan share, in a swap originally valued at $4.7 billion.

“Southeastern believes the proposed combination can produce substantial economic benefits for both companies and their shareholders,” Memphis, Tennessee-based Southeastern said in the filing.

Birmingham, Alabama-based Vulcan, the largest U.S. producer of sand, gravel and crushed stone, had rejected Martin Marietta’s offer, calling it “very low-ball” and saying it takes advantage of a U.S. construction recession. Vulcan has reported net losses in three of the last four quarters for which results were released, and cut its quarterly dividend to 1 cent a share, beginning last month, from 25 cents.

Martin Marietta, based in Raleigh, North Carolina, has said the proposed acquisition would result in $250 million of cost savings and would partially restore the dividend for Vulcan shareholders.

Letter to Board

Southeastern, the largest shareholder of Martin Marietta and the Vulcan’s third-biggest, said it sent a letter to Vulcan Chairman and Chief Executive Officer Don James and the rest of the board to urge discussion of the offer with Martin Marietta.

After failing to persuade Vulcan to negotiate, the fund said it has changed its filing status with the Securities and Exchange Commission, with respect to Vulcan, in order to “be more proactive in discussions with the managements and boards of each company, as well as other shareholders.”

James and Martin Marietta’s chief executive, Ward Nye, started merger discussions in April 2010, according to a Dec. 12 regulatory filing by Martin Marietta. The talks broke down last year over estimated cost savings and deciding on a CEO, the filing showed. Vulcan also said the Department of Justice would force the combined companies to sell assets in a depressed market.

Goldman Sachs, hired by Vulcan to evaluate Martin Marietta’s offer, said in a Dec. 19 letter that it was “inadequate from a financial point of view.” Vulcan said in a statement today that it will remain “engaged” with shareholders.

‘Extensive Talks’

“Vulcan held extensive talks with Martin Marietta over the past two years and Vulcan believes that Martin Marietta is overestimating synergies and ignoring the value loss of divestitures from a combination,” Vulcan said in the statement.

Martin Marietta said in a statement that it’s eager to resume talks with Vulcan.

“We appreciate the strong support our proposed combination has received from Southeastern Asset Management, as well as other shareholders,” Martin Marietta said in the statement.

Southeastern said today it holds a 13.3 percent stake in Martin Marietta. The fund has a 9.9 percent stake in Vulcan, according to data compiled by Bloomberg, trailing T. Rowe Price Associates with 12.7 percent and Dodge & Cox with 10.9 percent.

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