Vulcan Holders Urge Martin to Renew Takeover Offer as Ban Ends
Martin Marietta Materials Inc. should renew its bid for Vulcan Materials Co. (VMC), the biggest U.S. gravel producer, as a judge’s prohibition against a deal expires this week, two Vulcan shareholders said.
Loomis Sayles & Co. would welcome a new attempt, said Arthur Barry, a fund manager. The Ireland family, one of Vulcan’s founders and collective holder of about 1.5 million shares, also favors another bid, said Guy Mitchell, a family member and Vulcan investor.
Martin Marietta’s push to create the world’s largest supplier of gravel and sand, with an offer initially valued at $4.7 billion, fell apart in May. Delaware Chancery Court Judge Leo Strine ruled that Raleigh, North Carolina-based Martin Marietta violated an earlier agreement with Vulcan and said that the company couldn’t proceed for four months.
“If Vulcan and Martin combine on a stock-to-stock deal, this would be a U.S. champion in aggregates,” Barry said in a telephone interview. “Would a bid be favorable? Yes.”
Martin Marietta Chief Financial Officer Anne Lloyd wouldn’t comment yesterday when asked about another bid, beyond saying the waiting period runs through Sept. 14. Meghan Gavigan, a spokeswoman for Birmingham, Alabama-based Vulcan, also declined to comment.
Vulcan jumped 11 percent, the most since Martin Marietta’s Dec. 12 offer, to $46.46 in New York yesterday after a Sterne Agee & Leach analyst said a renewed Martin Marietta bid was “fairly likely.” Martin Marietta rose 3.3 percent to $86.89.
“There is still a compelling business case,” said Mitchell, whose family sued Vulcan management for rejecting the initial bid. “If I were Martin I would re-launch the tender offer and let the shareholders vote on it.”
Profits at Vulcan and Martin Marietta have declined in the weak construction market that followed the U.S. housing bubble and the slump in state and local government infrastructure spending. Since peaking in 2007, annual earnings before interest, taxes, depreciation and amortization dropped 63 percent at Vulcan and 42 percent at Martin Marietta.
Martin Marietta Chief Executive Officer Ward Nye made his hostile, all-stock offer after talks with Vulcan CEO Don James broke down. Nye promised to partly restore Vulcan’s quarterly dividend, which was cut to 1 cent a share from 25 cents in December, and find as much as $250 million in savings.
Vulcan rejected the offer as being too low and said the U.S. Justice Department would force the sale of assets, undercutting the value of the deal.
Loomis Sayles had been tilting toward Martin Marietta’s initial offer before the judge’s decision, which kept the bid from going to a shareholder vote, Barry said. The firm held about 1.18 million Vulcan shares as of June 30, according to data compiled by Bloomberg.
Judge Strine’s May 4 decision in Wilmington blocked a vote on the four Martin Marietta nominees to Vulcan’s 11-person board at the company’s June 1 annual meeting. He ruled that Martin Marietta used confidential information from Vulcan in devising its bid, a decision upheld in July by the Delaware Supreme Court.
While the vote by Vulcan investors wouldn’t have given Martin Marietta control of the company, it would have provided a gauge of support for a deal, Loomis Sayles’s Barry said.
“It gives us a chance to look under the covers a little based on what shareholders think of a combined entity,” Barry said. “Right now, we only hear a few bits and pieces.”
Martin Marietta had offered to exchange 0.5 share for each Vulcan share, which would value Vulcan at 6.5 percent less than yesterday’s closing prices for the two companies. A new offer may need to be higher to gain Vulcan investors’ support, said Kathryn Thompson, an analyst with Thompson Research Group in Nashville, Tennessee.
“It has to be at the right price,” said Thompson, who has a buy rating on the shares of both companies. “From an industry standpoint is makes a lot of sense for them to be combined.”
Vulcan responded to Martin Marietta’s bid with a proposal for annualized cost cuts of $155 million and $500 million of asset sales.
That undercuts Martin Marietta’s case of achieving savings, said Ted Grace, an analyst at Susquehanna Financial Group. The deal also faces antitrust scrutiny from the U.S. Justice Department, which could force the combined company to sell assets, and Martin Marietta “definitely” would have to increase the price, Grace said.
“I don’t see this thing going anywhere,” Grace said.
One Martin Marietta investor said a deal still makes sense if a Justice Department review doesn’t result in a large sale of assets, which would dilute the value of a combined company and aid rivals. A preliminary signal from the agency regarding any asset sales would be helpful, said Tom Russo, a partner with Lancaster, Pennsylvania-based Gardner Russo & Gardner.
“If they can get it on the proper terms, it should be attractive,” Russo said.
The case is Martin Marietta Materials Inc. (MLM) v. Vulcan Materials Co., CA7102, Delaware Chancery Court (Wilmington).
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