Martin Marietta launched a hostile takeover bid Monday for the larger gravel, sand and stone supplier Vulcan Materials with an offer of about $4.74 billion in stock after talks aimed at a friendly combination broke down.
In an open letter to Vulcan Chairman and CEO Donald James, Martin Marietta Chairman and CEO C. Howard Nye said that his company is taking its offer directly to Vulcan’s shareholders because Vulcan officials cut off negotiations that began over a year and a half ago.
Nye said that given the weak state of the U.S. economy and the uncertainty surrounding its recovery, a deal between the two construction materials companies makes even more sense now than it did when they first started negotiations.
“Martin Marietta’s board of directors is, and I personally am, disappointed that despite these substantial benefits, Vulcan has been unwilling to move ahead toward a definitive agreement,” Nye wrote in the letter. “We believe our proposal is compelling and transformative for the stakeholders of both Vulcan and Martin Marietta.”
Vulcan issued a statement on Monday saying that its board would carefully review the proposal and make a recommendation to its shareholders within the next 10 business days. In the meantime, shareholders should take no action, the company said.
Under the offer, Vulcan Materials Co. shareholders would get half a share of Martin Marietta Materials Inc. stock for each of their Vulcan shares. At last Friday’s prices, the offer valued Vulcan at $36.69 per share, a 9.4 percent premium.
Shares of Birmingham, Ala.-based Vulcan jumped $5.53, or 16.5 percent, to $39.08 in heavy midday trading, after peaking at $45 shortly after the news broke.
Martin Marietta shareholders appeared to approve of the offer. The Raleigh, N.C.-based company’s shares rose $2.02, or 2.8 percent, to $75.39 in heavy trading, after jumping as high as $79.48 earlier in the day.
Nye also said in the letter that his company would nominate five people to Vulcan’s board at Vulcan’s 2012 shareholder meeting. And it announced that it had filed lawsuits in both Delaware Chancery Court and New Jersey state court to ensure Vulcan shareholders get a chance to consider its offer.
Under the proposal, executives from both companies would serve on the combined company’s board. Vulcan’s James would be chairman and Martin Marietta’s Nye would serve as president and CEO.
Martin Marietta estimated the combined company could save between $200 million and $250 million in costs. The combined mineral reserves of the two companies would be about 28 billion tons.
The combined company would be based in Raleigh, but keep a major presence in Vulcan’s hometown of Birmingham.
If the companies combine, Martin Marietta said it plans to keep paying its annual dividend of $1.60, which is 20 times higher than Vulcan’s current annual dividend.
Martin Marietta and Vulcan both make construction aggregates such as crushed stone, sand and gravel. They also produce asphalt mix, concrete and cement.
Vulcan has about 8,000 workers at 319 production and related facilities. Last year it shipped 147.6 million tons of aggregates and its stone reserves total 14.7 billion tons.
In comparison, Martin Marietta employs about 4,500 people at more than 285 quarries and distribution facilities. Last year it shipped 130 million tons of materials and its reserves total over 13 billion tons.
While Vulcan’s market capitalization of $5.17 billion is significantly bigger than Martin Marietta’s $3.53 billion, Martin Marietta’s stock has done better in recent years.
The stocks of both companies have followed the path of the U.S. housing and construction market — rocketing higher beginning in 2003 as low interest rates drove up sales of new and existing homes and then dropping off starting in 2007 after the mortgage crisis hit and was followed by the Great Recession.
Since the start of 2008, Vulcan shares have lost about 53 percent of their value, while Martin Marietta shares are down about 39 percent.