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Martin Marietta mired in confidentiality arrangements

Apr, 05 2012


Could Martin Marietta have any more difficulties with confidentiality agreements than it already has in its hostile bid for Vulcan Materials? A letter sent by Vulcan on Monday says yes. But Martin Marietta responded Tuesday saying that was ridiculous.

Martin Marietta and Vulcan are already in a fight to the death in a Delaware court over two confidentiality agreements entered into back when they were trying to do a friendly deal. The case could answer a fundamental uncertainty in the world of takeovers: when two parties enter into a confidentiality agreement that contains no direct prohibition on a hostile bid, can a hostile bid be made even if there is a legal requirement to disclose information that it otherwise would have been required to be kept confidential? That case is nearing a decision with final arguments scheduled Monday. Chancellor Leo Strine has already reportedly said , “I think it’s a tough case…. Martin Marietta has put itself in an awkward position.”

Now, Vulcan has pulled an obscure paragraph out of Martin Marietta’s litigation papers from before last month’s trial and is using it to pour gasoline on the fire.

To overcome Vulcan’s opposition to its hostile tender offer, Martin Marietta, in a typical gambit, is running a proxy fight to seek to replace four of Vulcan’s directors at this year’s annual meeting. Vulcan contends that Martin Marietta breached its confidentiality obligations by sharing with its prospective nominees Vulcan’s prior friendly discussions with Martin Marietta even before the public disclosure of them that is at the heart of the Delaware.

The discussions are at the heart of the Delaware litigation because they were disclosed publicly in the tender offer documents of Martin Marietta upon commencement of its offer. Martin Marietta’s position on that issue is that the public disclosure was required by law and therefore permitted under its confidentiality agreements with Vulcan.

But there was no legal requirement to disclose the confidential discussions to potential nominees. Martin Marietta said in a brief that contractually the disclosure was still permitted:

“The evidence at trial will show that Martin Marietta’s nominees entered into confidentiality agreements on terms that brought the nominees within the Agreements between Vulcan and Martin Marietta (as party “Representatives”). Those agreements specifically state that the “Recipient will agree to be bound as a ‘Representative’ of the Company under the terms of the confidentiality agreement between the Company and the Target for so long as such agreement remains in effect.”

As a contractual matter, that position makes sense. As is typical, the confidentiality agreement between Vulcan and Martin Marietta permits disclosure to advisors and other “representatives” as long as those persons agree to be bound by the underlying confidentiality agreement. And Martin Marietta says that the nominees signed an agreement to do exactly that. Vulcan went on the attack because other than in that paragraph in a brief, that agreement with the nominees has not been publicly disclosed. In a letter Monday, Vulcan demanded a copy of those agreements. It also said the existence of the agreements “might render false” representations that have been made by the nominees in order to get on the ballot at the annual meeting. Vulcan also said it was “concerned about possible implications” concerning the nominees’ independence from Martin Marietta. On Tuesday, Martin Marietta fired off its own letter essentially shrugging off the issue. It indicated that the agreements in question were two “straightforward” pages between Martin Marietta’s lawyers (Skadden, where I used to work) and nominee candidates that were prepared to not disclose the names of the parties involved.

In other words, these were agreements that were entered into when Martin Marietta’s work on a bid was super-secret and, because of the risk of a leak, Martin Marietta could not identify itself to prospective director candidates unless candidates agreed to keep confidential the identity of the law firm’s client. Martin Marietta said these agreements were immaterial.

Still, Martin Marietta describes in detail in its proxy material for the annual meeting three different agreements it has with its nominees and attaches those agreements verbatim without a hint of this fourth agreement on confidentiality.

There is a bit of mystery here on both sides. Both sides apparently agree that Vulcan has known of the existence of the nominee confidentiality agreements since before the trial over a month ago. Why has it waited to complain?

But why doesn’t Martin Marietta just give the agreements to Vulcan and publicly disclose them? On Wednesday afternoon, Vulcan sharpened its attack on that issue. It reiterated its demand for the agreements and admitted the Vulcan lawyers already have copies of them but that they cannot share them with the Vulcan board: They were produced in litigation and are subject to a court order restricting their use. But since the lawyers have already seen the agreements, it looks like the Vulcan lawyers already have in mind their next chess move in the attack.

The noise over this new controversy is not over. But the real question is whether there will be fire underneath all this smoke.

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