Legal maneuvers complicate Martin Marietta’s pitch for Vulcan Materials

Three days before Christmas, Vulcan Materials Co. indicated in sharp terms that its wish list did not include a stock-for-stock merger Martin Marietta Materials proposed 10 days prior. Vulcan Materials noted unanimous board rejection of the proposal, while questioning the legality of Martin Marietta’s actions leading up to a formal offer to Vulcan shareholders in early December.

Announcing the unsolicited offer, Martin Marietta cited the potential for creating a heavy building materials powerhouse positioned to realize cost-savings in the $200–$250 million range. A combined Martin Marietta-Vulcan Materials would have aggregate shipments (278 million tons, 2010) more than double those of its closest peers, Oldcastle Materials (118 million tons) and Lehigh Hanson Inc. (116 million tons), but limited additional scale in ready mixed concrete and asphalt production.

As the number one and two players in sand & gravel and crushed stone, Vulcan Materials and Martin Marietta have strong stakes from Mid-Atlantic and Southeast states into Texas. Martin Marietta would bring a merged company Intermountain, Great Plains and Upper Midwest presence, while Vulcan would extend the Martin Marietta footprint to California, Pennsylvania, Illinois, Washington and Arizona.

Regarding market overlap (see Editorial, page 4), Martin Marietta President and CEO Ward Nye noted in a letter to his Vulcan counterpart Don James: “It is fair to say that any asset dispositions necessary to support regulatory approvals could be readily accomplished on a fast timeline given the likely interest from various buyers.”

The combined entity would bring what Martin Marietta projects as $100 million–$120 million in potential annual savings from purchasing and operating efficiencies, and $100 million–$130 million in savings from elimination of redundancies. Martin Marietta proposes the combined company a) maintain Raleigh, N.C., headquarters, and strong presence in Vulcan Materials’ headquarters city, Birmingham, Ala.; b) realign regional operating and sales structures; and c) have an executive team in which James serves as chairman and Nye retains current titles.

Martin Marietta’s offer of .5 share for each share of Vulcan Materials is effective through May 18, 2012. If the merger clears shareholder and regulator approvals, company ownership would be split 58 percent and 42 percent among Vulcan Materials and Martin Marietta shareholders, respectively.