Martin Marietta Materials, Inc. (NYSE: MLM) today announced that
it has delivered a proposal to Vulcan Materials Company (NYSE: VMC)
and commenced an exchange offer to effect a business combination
with Vulcan that would create a U.S.-based company that is the
global leader in construction aggregates with a footprint reaching
across North America. As of December 9, 2011, the combined market
capitalization was $7.7 billion and the combined total enterprise
value was $11.4 billion. The combined mineral reserves of the two
companies would be 28 billion tons.
Ward Nye, Martin Marietta’s President and Chief Executive
Officer said, “The combination of Martin Marietta and Vulcan is a
compelling opportunity for both companies’ shareholders, customers,
employees and the communities we serve. By bringing together our
highly complementary assets, we have the opportunity to create the
global leader in aggregates, led by the best team in the industry,
drawn from both companies. The combined company will have one of
the industry’s strongest balance sheets and, as we achieve expected
synergies of $200 to $250 million and continue to adhere to Martin
Marietta’s strict operational and financial discipline, the company
will be well positioned to pursue a wide range of attractive growth
opportunities and to continue delivering value to shareholders.
“We also intend to maintain the dividend for the combined
company at Martin Marietta's current rate of $1.60 per Martin
Marietta share annually, or the equivalent of $0.80 per Vulcan
share annually, based on the proposed exchange ratio. This dividend
rate is 20 times Vulcan’s current level,” said Mr. Nye.
The proposal, including the exchange offer, has the unanimous
support of the Martin Marietta Board of Directors. Under the terms
of the exchange offer, each outstanding share of Vulcan will be
exchanged for 0.50 Martin Marietta shares. The offer represents a
premium for Vulcan shareholders of 15% to the average exchange
ratio based on the closing share prices for Vulcan and Martin
Marietta during the 10-day period ended December 9, 2011 and 18% to
the average exchange ratio based on the closing share prices for
Vulcan and Martin Marietta during the 30-day period ended December
9, 2011.
“We are bringing our proposal directly to Vulcan’s shareholders
after Vulcan ceased participating in private discussions toward a
negotiated transaction, which commenced over a year and a half
ago,” Mr. Nye concluded.
Martin Marietta’s proposal contemplates directors from both
Martin Marietta and Vulcan serving on the combined company's Board.
Furthermore, it proposes Don James, Vulcan’s Chairman and Chief
Executive Officer, serve as Chairman of the Board, and that Ward
Nye serve as President and Chief Executive Officer, with executives
from both companies on the senior management team. Under the
proposal, the combined company would be headquartered in Raleigh,
North Carolina, where Martin Marietta is based, and maintain a
major presence in Birmingham, Alabama, where Vulcan is based.
Below is the full text of the letter that Martin Marietta today
sent to Vulcan:
December 12, 2011
Mr. Donald M. James
Chairman and Chief Executive Officer
Vulcan Materials Company
1200 Urban Center Drive
Birmingham, Alabama 35242
Dear Don:
More than a year and a half ago, you and I (and, on several
occasions, members of our senior management teams) began to explore
the financial and strategic merits and potential terms of a
business combination of Vulcan Materials Company (“Vulcan”) and
Martin Marietta Materials, Inc. ("Martin Marietta"). Despite Martin
Marietta's clear, continuing interest, some months ago Vulcan
disengaged from discussions. Martin Marietta continues to believe
that a strategic combination of our two companies is compelling
financially and operationally, and that such a combination presents
our respective shareholders with a significant value creation
opportunity and brings great benefits to our respective customers
and employees.
Recent events, including the fragile state of the U.S. economy,
the lack of visibility as to when a sustainable recovery will take
place, and the uncertainty surrounding government spending on
infrastructure projects, only strengthen the rationale behind a
combination. Combining our two complementary companies makes
excellent industrial sense and establishes a U.S.-based company
that is the global leader in our industry. The continued
uncertainty regarding the timing and level of recovery in the
macroeconomic environment underscores the immediate value your
shareholders would receive in a business combination with Martin
Marietta, through the conversion of their Vulcan investment into
the stock of a more stable and financially sound combined company
that pays a meaningful dividend – equivalent to 20 times Vulcan's
current dividend per share. In addition, we believe your
shareholders would realize long-term value in a business
combination with Martin Marietta from the anticipated improvement
in share price derived from the expected significant synergies
resulting from the combination of our companies.
Martin Marietta's Board of Directors is, and I personally am,
disappointed that despite these substantial benefits, Vulcan has
been unwilling to move ahead towards a definitive agreement. We
believe our proposal is compelling and transformative for the
stakeholders of both Vulcan and Martin Marietta. In light of
Vulcan’s reluctance to consider further this value-enhancing
opportunity, Martin Marietta’s Board of Directors has unanimously
concluded that the time has come to take steps intended to result
in prompt and fair consideration of our proposal on behalf of
Vulcan's shareholders.
Let me provide you and your Board with the key aspects of our
proposal:
- We are proposing a stock-for-stock,
tax-free transaction, in which each outstanding share of Vulcan
common stock would be exchanged for 0.50 shares of Martin Marietta
common stock. This exchange ratio represents a premium for Vulcan
shareholders of 15% to the average exchange ratio based on closing
share prices for Vulcan and Martin Marietta during the 10-day
period ended December 9, 2011 and 18% to the average exchange ratio
based on closing share prices for Vulcan and Martin Marietta during
the 30-day period ended December 9, 2011.
- We are proposing a combined company
board, with you as Chairman of the Board.
- We are proposing a senior management
team that would consist of me as President and Chief Executive
Officer and other senior leaders from each organization based on a
“best athlete” approach.
- We are proposing to maintain a major
presence in Birmingham.
- We are proposing to change the name of
the combined company to reflect the names of each of our respective
organizations.
The proposed transaction will, in our view, provide important
benefits for both companies’ stakeholders – investors, employees,
and the customers we serve – that will be particularly valuable in
the current uncertain economic climate:
- Substantial Cost
Synergies. We anticipate significant cost synergies ranging
from $200 million to $250 million, derived from a combination of
operating efficiencies and elimination of duplicate functions.
These are savings that would benefit all shareholders and customers
of the combined company. Vulcan’s shareholders would participate in
the value created by these synergies as well as best-in-class
financial performance. In addressing cost synergies, your Board and
shareholders should be aware that we are using our estimates, which
are realistic and achievable under our disciplined and responsible
cost management philosophy, and are quite a bit higher than your
estimates of synergies. We believe our consistent cost management
leadership within our industry underscores the credibility of our
estimates. For example, from 2007 to the third quarter of 2011,
Martin Marietta’s SG&A as a percent of revenue has declined
from 8.0% to 7.9%, while Vulcan’s has increased from 9.3% to
12.0%.
- Complementary
Geographic Footprints / Global Aggregates Leader. The
combination of complementary geographic footprints will create a
U.S.-based company that is the clear global leader in aggregates,
and will result in a company that can deliver enhanced product
offerings and service to customers. The combined company would have
an outstanding asset base that will create value for its
shareholders over both the short and long term. Among other things,
greatly increased scale provides a broader set of opportunities for
organic and inorganic growth. From our understanding of the market,
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. Moreover,
our recent asset swap that resulted in the disposition of our River
assets reduces regulatory concerns.
- Strong Financial
Position. The combined company will have a significantly
stronger balance sheet than Vulcan currently possesses. The
combined company's net debt would be 5.6x combined LTM adjusted
EBITDA, excluding synergies, and 4.1x – 4.3x combined LTM adjusted
EBITDA, including synergies of $200 million – $250 million, as of
September 30, 2011, relative to Vulcan's net debt of 8.9x LTM
adjusted EBITDA, as of the same date. This would help Vulcan to
achieve one of its core objectives – enhanced financial flexibility
through deleveraging. We expect the combined company credit rating
to be higher than Vulcan's is at present.
- Improved Cash
Flows / Meaningful Dividend. Finally, because the proposed
transaction is being structured as a tax-efficient, stock-for-stock
transaction, the combined company will have significant cash flow,
giving it the ability to pay a meaningful quarterly cash dividend.
Indeed, it is our objective to maintain the dividend at Martin
Marietta’s current rate ($1.60 per Martin Marietta share annually,
equivalent to $0.80 per Vulcan share annually, based on the
proposed exchange ratio). In light of Vulcan's recent decrease in
its dividend (to $0.04 per Vulcan share annually), we believe
Vulcan's shareholders will find this aspect of the proposal
attractive.
We believe the substantial overlap between the shareholders of
Martin Marietta and Vulcan will reinforce the benefit from the
value-creating combination of our two companies. Further, we
believe that Martin Marietta and Vulcan employees would benefit
from the greater scale and strength of the combined company.
In connection with delivering this proposal letter, we are
taking the following additional steps:
- We are providing you with a proposed
transaction agreement that sets forth in additional detail the
terms described in this proposal letter.
- We are commencing a first-step exchange
offer, reflecting the same exchange ratio as provided in the
transaction agreement. This exchange offer, subject to the
conditions specified therein, will give Vulcan shareholders the
opportunity to exchange their shares at the earliest time for
Martin Marietta shares.
- We are advising you of Martin
Marietta's intention to submit the names of five nominees (the
"Nominees") for election as independent directors at Vulcan's 2012
Annual Meeting, and accordingly are requesting from Vulcan's
Secretary the written questionnaire, and the written representation
and agreement, referenced in Section 1.05 of Vulcan's By-Laws.
- Earlier today, Martin Marietta
commenced a lawsuit in Delaware Chancery Court and in New Jersey
state court in furtherance of its effort to ensure that Vulcan's
shareholders have the opportunity to assess directly Martin
Marietta's proposal.
Please know that it remains our strong preference to execute
this transaction on a negotiated basis with Vulcan's current Board
of Directors. In furtherance of this approach, my team and I are
prepared to engage immediately with the Vulcan team. In addition,
we and our advisers, Deutsche Bank Securities Inc., J.P. Morgan
Securities LLC and Skadden, Arps, Slate, Meagher & Flom LLP,
are prepared to begin immediately the process of negotiating a
definitive agreement. We believe that we can complete due
diligence, negotiate a definitive agreement and obtain final Martin
Marietta Board approval quickly. We are prepared to provide
reciprocal due diligence to Vulcan.
This letter and the accompanying transaction agreement are not
binding and do not represent or create any legally binding or
enforceable obligations. No such obligations will be imposed on
either party unless and until a definitive agreement is signed by
Martin Marietta and Vulcan.
As analysts and industry observers have long speculated, our two
companies are highly complementary and a combination makes a great
deal of strategic and financial sense – and we agree. It is our
hope that you and your Board will carefully evaluate the financial
and operational benefits of this now-public proposal and elect to
engage in a productive dialogue with us so that, together, we can
execute this very compelling strategic business combination with
minimal disruption.
Should you have any questions concerning this proposal, I would
be pleased to speak with you at any time.
Sincerely,
C. Howard Nye
cc: Board of Directors of Vulcan
As noted in its letter, Martin Marietta is taking additional
steps to advance the transaction, including:
- Martin Marietta delivered to Vulcan
with the Martin Marietta proposal letter a draft transaction
agreement providing for the proposed business combination.
- This morning, Martin Marietta commenced
lawsuits in Delaware and in New Jersey seeking to ensure that
Vulcan's shareholders have the opportunity to directly assess
Martin Marietta's offer.
- Martin Marietta intends to submit the
names of five nominees for election as independent directors at
Vulcan's 2012 Annual Meeting.
Martin Marietta's financial advisors in connection with the
proposed transaction are Deutsche Bank Securities Inc. and J.P.
Morgan Securities LLC, and its legal counsel is Skadden, Arps,
Slate, Meagher & Flom LLP.
The offering documents (including a preliminary prospectus /
offer to exchange and a related letter of transmittal) describing
the exchange offer and the means for Vulcan shareholders to tender
their shares of Vulcan common stock into the exchange offer have
been filed with the Securities and Exchange Commission (SEC) and
will be delivered to Vulcan shareholders. These documents can also
be found on the SEC’s website at www.sec.gov or at www.aggregatesleader.com, a website that Martin
Marietta has launched to provide details regarding its proposal. If
any Vulcan shareholder has questions regarding the exchange offer
or would like to request any offering documents, the shareholder
should contact Martin Marietta’s Information Agent for the exchange
offer, Morrow & Co., LLC, toll free at (877)757-5404.
Completion of the exchange offer is subject to, among other
conditions, entry into a definitive merger agreement with Vulcan
(which would provide for, among other things, a second-step merger
to acquire any outstanding shares of Vulcan common stock not
exchanged pursuant to the exchange offer). Consummation of the
offer is also subject to other conditions, including receipt of
regulatory approvals. The exchange offer is scheduled to expire at
5:00 p.m., New York City Time on May 18, 2012, unless it is
extended.
Investment Community Conference
Call
Martin Marietta will host a conference call to discuss its
proposal to combine with Vulcan beginning at 10:30 a.m. Eastern
time on Monday, December 12, 2011. The conference call may be
accessed by calling 866-783-2141 (international 857-350-1600) and
entering passcode 32533878. The slides for the presentation, as
well as a webcast, can be accessed at the Investor Relations
section of the Company's website, www.martinmarietta.com, or
http://www.media-server.com/m/p/bp72k957. An online replay will be
available shortly following the conclusion of the live
broadcast.
Cautionary Note Regarding
Forward-Looking Statements
This press release may include "forward-looking statements."
Statements that include words such as "anticipate," "expect,"
"should be," "believe," "will," and other words of similar meaning
in connection with future events or future operating or financial
performance are often used to identify forward-looking statements.
All statements in this press release, other than those relating to
historical information or current conditions, are forward-looking
statements. These forward-looking statements are subject to a
number of risks and uncertainties, many of which are beyond Martin
Marietta's control, which could cause actual results to differ
materially from such statements. Risks and uncertainties relating
to the proposed transaction with Vulcan include, but are not
limited to: Vulcan's willingness to accept Martin Marietta's
proposal and enter into a definitive transaction agreement
reasonably satisfactory to the parties; Martin Marietta's ability
to obtain shareholder, antitrust and other approvals on the
proposed terms and schedule; uncertainty as to the actual premium
that will be realized by Vulcan shareholders in connection with the
proposed transaction; uncertainty of the expected financial
performance of the combined company following completion of the
proposed transaction; Martin Marietta's ability to achieve the
cost-savings and synergies contemplated by the proposed transaction
within the expected time frame; Martin Marietta's ability to
promptly and effectively integrate the businesses of Vulcan and
Martin Marietta; a downgrade of the credit rating of Vulcan's
indebtedness, which could give rise to an obligation to redeem
Vulcan's existing indebtedness; the potential implications of
alternative transaction structures with respect to Vulcan, Martin
Marietta and/or the combined company, including potentially
requiring an offer to repurchase certain of Martin Marietta's
existing debt; the implications of the proposed transaction on
certain of Martin Marietta’s and Vulcan’s employee benefit plans;
and disruption from the proposed transaction making it more
difficult to maintain relationships with customers, employees or
suppliers. Additional risks and uncertainties include, but are not
limited to: the performance of the United States economy; decline
in aggregates pricing; the inability of the U.S. Congress to pass a
successor federal highway bill; the discontinuance of the federal
gasoline tax or other revenue related to infrastructure
construction; the level and timing of federal and state
transportation funding, including federal stimulus projects; the
ability of states and/or other entities to finance approved
projects either with tax revenues or alternative financing
structures; levels of construction spending in the markets that
Martin Marietta and Vulcan serve; a decline in the commercial
component of the nonresidential construction market, notably office
and retail space; a slowdown in residential construction recovery;
unfavorable weather conditions, particularly Atlantic Ocean
hurricane activity, the late start to spring or the early onset of
winter and the impact of a drought or excessive rainfall in the
markets served by Martin Marietta and Vulcan; the volatility of
fuel costs, particularly diesel fuel, and the impact on the cost of
other consumables, namely steel, explosives, tires and conveyor
belts; continued increases in the cost of other repair and supply
parts; transportation availability, notably barge availability on
the Mississippi River system and the availability of railcars and
locomotive power to move trains to supply Martin Marietta's and
Vulcan's long haul distribution markets; increased transportation
costs, including increases from higher passed-through energy and
other costs to comply with tightening regulations as well as higher
volumes of rail and water shipments; availability and cost of
construction equipment in the United States; weakening in the steel
industry markets served by Martin Marietta's dolomitic lime
products; inflation and its effect on both production and interest
costs; Martin Marietta’s ability to successfully integrate
acquisitions and business combinations quickly and in a
cost-effective manner and achieve anticipated profitability to
maintain compliance with Martin Marietta's leverage ratio debt
covenants; changes in tax laws, the interpretation of such laws
and/or administrative practices that would increase Martin
Marietta's and/or Vulcan's tax rate; violation of Martin Marietta's
debt covenant if price and/or volumes return to previous levels of
instability; a potential downgrade in the rating of Martin
Marietta's or Vulcan’s indebtedness; downward pressure on Martin
Marietta's or Vulcan's common stock price and its impact on
goodwill impairment evaluations; the highly competitive nature of
the construction materials industry; the impact of future
regulatory or legislative actions; the outcome of pending legal
proceedings; healthcare costs; the amount of long-term debt and
interest expense incurred; changes in interest rates; volatility in
pension plan asset values which may require cash contributions to
pension plans; the impact of environmental clean-up costs and
liabilities relating to previously divested businesses; the ability
to secure and permit aggregates reserves in strategically located
areas; exposure to residential construction markets; and the impact
on the combined company (after giving effect to the proposed
transaction with Vulcan) of any of the foregoing risks, as well as
other risk factors listed from time to time in Martin Marietta's
and Vulcan's filings with the SEC.
The foregoing review of important factors should not be
construed as exhaustive and should be read in conjunction with the
other cautionary statements that are included elsewhere, including
the Risk Factors section of the Registration Statement and our most
recent reports on Form 10-K and Form 10-Q, and any other documents
of Martin Marietta and Vulcan filed with the SEC. Any
forward-looking statements made in this press release are qualified
in their entirety by these cautionary statements, and there can be
no assurance that the actual results or developments anticipated by
us will be realized or, even if substantially realized, that they
will have the expected consequences to, or effects on, us or our
business or operations. Except to the extent required by applicable
law, we undertake no obligation to update publicly or revise any
forward-looking statement, whether as a result of new information,
future developments or otherwise.
Important Additional
Information
This press release relates to the Exchange Offer by Martin
Marietta to exchange each issued and outstanding share of common
stock of Vulcan for 0.50 shares of Martin Marietta common stock.
This press release is for informational purposes only and does not
constitute an offer to exchange, or a solicitation of an offer to
exchange, shares of Vulcan common stock, nor is it a substitute for
the Tender Offer Statement on Schedule TO or the preliminary
prospectus/offer to exchange included in the Registration Statement
on Form S-4 (the “Registration Statement”) (including the letter of
transmittal and related documents and as amended and supplemented
from time to time, the “Exchange Offer Documents”) filed by Martin
Marietta on December 12, 2011 with the SEC. The Registration
Statement has not yet become effective. The Exchange Offer will be
made only through the Exchange Offer Documents. Investors and
security holders are urged to read the Exchange Offer Documents and
all other relevant documents that Martin Marietta has filed or may
file with the SEC if and when they become available because they
contain or will contain important information.
Martin Marietta may file a proxy statement on Schedule 14A and
other relevant documents with the SEC in connection with the
solicitation of proxies (the “Vulcan Meeting Proxy Statement”) for
the 2012 annual meeting of Vulcan shareholders (the “Vulcan
Meeting”). Martin Marietta may also file a proxy statement on
Schedule 14A and other relevant documents with the SEC in
connection with its solicitation of proxies for a meeting of Martin
Marietta shareholders (the “Martin Marietta Meeting”) to approve,
among other things, the issuance of shares of Martin Marietta
common stock pursuant to the Exchange Offer (the “Martin Marietta
Meeting Proxy Statement”). Investors and security holders are urged
to read the Vulcan Meeting Proxy Statement and the Martin Marietta
Meeting Proxy Statement and other relevant materials if and when
they become available because they will contain important
information. All documents referred to above, if filed, will be
available free of charge at the SEC’s website (www.sec.gov) or by
directing a request to Morrow & Co., LLC at (877) 757-5404
(banks and brokers may call (800) 662-5200).
Martin Marietta, certain of its directors and officers and the
individuals expected to be nominated by Martin Marietta for
election to Vulcan’s Board of Directors may be deemed participants
in any solicitation of proxies from Vulcan shareholders for the
Vulcan Meeting or any adjournment or postponement thereof. Martin
Marietta and certain of its directors and officers may be deemed
participants in any solicitation of proxies from Martin Marietta
shareholders for the Martin Marietta Meeting or any adjournment or
postponement thereof. Information about Martin Marietta and Martin
Marietta’s directors and officers, including a description of their
direct and indirect interests, by security holdings or otherwise,
is available in the proxy statement for Martin Marietta’s 2011
annual meeting of shareholders, filed with the SEC on April 8,
2011, and the Registration Statement. Information about any other
participants, including a description of their direct and indirect
interests, by security holdings or otherwise, will be included in
the Vulcan Meeting Proxy Statement, the Martin Marietta Meeting
Proxy Statement or other relevant solicitation materials that
Martin Marietta may file with the SEC in connection the foregoing
matters, as applicable.
About Martin Marietta
Martin Marietta Materials, Inc. is the nation's second largest
producer of construction aggregates and a producer of
magnesia-based chemicals and dolomitic lime. For more information
about Martin Marietta Materials, Inc., refer to the Corporation's
website at www.martinmarietta.com.
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