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Vulcan Materials hostile takeover bid ruling upheld

Jul, 13 2012

(Alabama)  --  Vulcan Materials hostile takeover bid ruling upheld as illegal by Delaware Supreme Court

The Delaware Supreme Court amplified recent rulings on the Vulcan Materials hostile takeover bid, saying rival Martin Marietta Materials didn't err by launching the takeover, but by using confidential information gleaned from friendly merger talks.

The state's high court said in a supplementary opinion released Tuesday that a lower court was correct in blocking Martin Marietta's hostile bid for Birmingham-based Vulcan Materials, the largest U.S. producer of road-construction materials.

The debate on the bid's propriety rested on confidentiality agreements the companies signed during friendly merger talks before the December hostile offer by Raleigh, N.C.-based Martin Marietta, the industry's No. 2 firm.

"It is undisputed that the confidentiality agreements in this case were true confidentiality agreements," the Delaware justices wrote.

The agreements "did not categorically preclude Martin from making a hostile takeover bid for Vulcan," the opinion reads. "What they did was preclude Martin from using and disclosing Vulcan's confidential, nonpublic information."

The companies sued each other soon after the hostile offer, leading to the Delaware Chancery Court decision in May that blocked Martin Marietta from further takeover actions -- such as running a dissident slate of directors at the June 1 annual meeting -- for four months.

The prospect of combining the crushed-rock industry's top two companies emerged after Martin Marietta went public late last year with its hostile bid. The company offered to exchange half a share for each share of Vulcan in a $4.7 billion deal that valued the Birmingham company at about $36.69 per share, or a 9 percent premium to recent closing prices.

"We appreciate the Delaware Supreme Court's careful consideration of this matter and are pleased with the Court's ruling affirming the May decision of the Delaware Court of Chancery," said Vulcan spokesman David Donaldson. "Vulcan's board and management team are committed to enhancing long-term value for all shareholders, and we look forward to continuing to deliver on our growth strategy and cost savings initiatives."

Vulcan is one of the city's oldest and largest firms, founded in 1919 and employing 7,500 people at rock quarries nationwide, including about 700 at the Liberty Park headquarters. There are many individual shareholders in Birmingham, after the company first sold stock to the public in 1956.

The takeover bid caused widespread discomfort in Birmingham. The Martin Marietta plan envisioned cutting costs by eliminating jobs and putting the combined headquarters in Raleigh, with its managers at the top.

Part of Vulcan's rejection of the $4.7 billion offer was the board's determination that the Justice Department would order the fire sale of valuable rock quarries to keep the industry's top two firms from dominating. Todd Vencil, an analyst at Birmingham-based investment bank Sterne Agee Group, said there is a level of government-ordered quarry sales that would still make the deal amenable to Martin Marietta. Too many would make the deal not worth the trouble and expense, Vencil said.

More will be known in September, Vencil said, when the four-month standstill expires.

"At the that point, if Martin Marietta is still interested, they could just relaunch, and try to get clarity from the Justice Department," Vencil said.

By Russell Hubbard
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