A hostile takeover attempt that would combine the two largest U.S. producers of construction aggregates has become ensnared in a web of litigation that has thrown the deal into federal court.
Trapped in the middle is Vulcan Materials Co., of Birmingham, AL, the nation’s No. 1 producer of construction aggregates, which is fighting to fend off a $4.74 billion takeover offer by second-ranked Martin Marietta Materials Inc., of Raleigh, NC.
Martin Marietta Materials
|Martin Marietta Materials is the nation’s No. 2 producer of construction aggregates.|
Both companies produce crushed stone, sand and gravel, as well as concrete, asphalt mix and cement, for roads, bridges and other infrastructure and construction.
But market leader Vulcan had lost money in three of its previous four quarters when No. 2 Martin Marietta stepped in with its unsolicited offer, announced on Dec. 12.
Vulcan Materials’ board of directors reviewed the proposal and, on Dec. 22, announced its unanimous opposition. Furthermore, the company said it would sue to block the deal, which chairman and CEO Donald M. James called “lowball and opportunistic.”
Vulcan Materials contends that the offer undervalues the company, exploits its condition in a difficult economic time, is based on illegally obtained and disclosed documents, and is unlikely to pass muster with federal antitrust regulators.
|Vulcan Materials CEO Donald James called the takeover offer “lowball and opportunistic.”|
The offer calls for each outstanding share of Vulcan stock to be exchanged for half a share of Martin Marietta.
‘Obviously Trying to Take Value’
"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,” said James, who would become chairman of the board of the combined company.
“Martin Marietta is obviously trying to take value that rightly belongs wholly to Vulcan shareholders."
Vulcan said it had explored a merger with Martin Marietta in the past, but had rejected the idea. Documents used in those discussions were then used to develop the hostile takeover bid, Vulcan alleges.
Vulcan Materials has no connection to Vulcan Painters Inc., the Vulcan Group or Vulcan Pipe & Steel Coatings Inc., which are also based in Birmingham, AL, home to many companies that use the Vulcan name.
Vulcan’s opposition, however, did not sit well with Belgian-based KBC Asset Management, which owned 44,760 Vulcan shares as of Sept. 30.
KBC has just filed suit in U.S. District Court in Alabama to force Vulcan to accept the offer. KBC, whose parent company is the Belgium bank KBC Bank N.V., has also filed a motion asking to consolidate its suit with Vulcan’s and to expedite the whole case.
KBC’s suit argues that Martin Marietta’s offer provides "significant bird-in-the-hand value to Vulcan's shareholders in light of Vulcan's poor performance over the recent periods.”
The suit also accuses Vulcan's board and management of seeking "to entrench themselves in lucrative positions in Vulcan that would otherwise be wiped out if Marietta were to effectuate the exchange offer and acquire Vulcan."
Bid Drives On
Undeterred, Martin Marietta continues to insist that the deal can be completed and that the offer “represents a compelling opportunity for Vulcan’s shareholders.”
“Vulcan misses the point by ignoring the significant incremental value creation inherent in this combination,” Martin Marietta said.
Even as it announced the bid, Martin Marietta said it had already filed lawsuits in both Delaware Chancery Court and New Jersey state court to ensure that Vulcan shareholders had the chance to consider the offer. And now, Martin Marietta says it will take its case directly to them.
Hostile or not, a merger of the two companies would create the world’s largest supplier of rock and gravel, with ripple effects throughout related industries.
Aggregates are used in virtually all types of construction projects, including highways, water and sewer systems, industrial manufacturing facilities and other non-residential buildings. Aggregates are also used for railroad ballast and non-construction industrial and agricultural applications.
Vulcan Materials operates more than 300 aggregates plants and other production and distribution facilities in the U.S., Bahamas and Mexico. Founded in 1909 as Birmingham Slag Co., Vulcan’s largest end market today is highway construction. At the end of 2010, the company had 14.7 billion tons of zoned and permitted aggregates reserves—the U.S.’s largest reserve base.
Martin Marietta has more than 285 quarries, distribution yards and plants in 27 states, Canada, the Bahamas and the Caribbean Islands and more than 13 billion tons in aggregate reserves.
The Vulcan Materials battle is the third recent merger and acquisition attempt that could create a new monopoly for the coatings and related industries.
In December, the Federal Trade Commission announced that it would block an attempt by Graco to merge with its chief competitor, ITW Finishing.
Just days later, United Rentals Inc., the world’s largest industrial equipment rental company, said it would swallow chief rival.
RSC Holdings Inc. for $1.9 billion in cash and stock. The FTC has not yet reviewed that deal.