MLM Martin Marietta Materials Inc

Vulcan Materials Corp. (VMC) recently announced that the Delaware Court of Chancery passed a ruling delaying rival Martin Marietta Materials, Inc.’s (MLM) hostile bid by four months. Shares of Vulcan, the nation’s largest producer of construction aggregates, responded favorably to the news. Martin Marietta intends to appeal the ruling.

In a hostile move, in December 2011, Martin Marietta proposed to purchase all outstanding shares of Vulcan at a fixed exchange ratio of 0.50 shares of Martin Marietta common stock for each Vulcan common share. The company is also trying to nominate its directors to Vulcan’s Board. Vulcan management, however, found the offer grossly inadequate.

Martin Marietta aims to appeal the ruling and seek a stay of the court’s decision. If Martin Marietta succeeds, its four directors will be able to contest in the election at the upcoming Vulcan annual meeting in June this year. Otherwise, it will be have to shelf its takeover attempt of Vulcan for the next four months.

Our Recommendation

We currently have a Neutral recommendation on Vulcan. The stock carries a Zacks #3 Rank in the near term (Hold rating).

We are encouraged by the company’s better-than-forecast first quarter results, in particular the impressive performance at the Aggregates segment which is slowly gaining momentum. We also like the company’s expanded cost initiatives which will improve the overall credit profile of the company in the long run.

Though public construction spending remains stable, low levels of growth in the private sector are still a concern. This combined with rising costs of energy and other raw materials as well as the company’s high debt load keeps us on the sidelines. We maintain our Neutral recommendation on the stock

 
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