3rd UPDATE: Martin Marietta In Hostile Bid For Vulcan Materials

Martin Marietta Materials Inc. (MLM) on Monday launched a hostile $4.8 billion offer for larger U.S. rival Vulcan Materials Co. (VMC), as the producers of gravel, sand and other building materials try to position for an eventual upturn in construction and road building.

The all-stock offer came after what Martin Marietta executives described as a lengthy effort to negotiate a combination of the two largest U.S. providers of construction aggregates. Together, they have approximately 28 billion tons of reserves focused on fast-growing states such as Texas, Georgia and North Carolina.

The industry has yet to rebound from a steep slump in aggregates demand during the economic downturn and subsequent decline in construction activity. But the nonresidential-construction market recently has been showing some signs of recovery, while a White House focus on rebuilding infrastructure has raised hopes for increased spending on roads, bridges and other public-works projects.

Martin Marietta, of Raleigh, N.C., is offering half a share for each Vulcan share, a 15% premium to Vulcan's 10-day trailing performance, although investors are indicating they expect a higher bid to materialize. Shares in Vulcan, of Birmingham, Ala., were recently trading up 17% at $39.25, above the $38.34 indicative value of the offer, with Martin Marietta's stock up 3.3% at $76.66.

"It remains our very, very strong preference to execute this transaction on a negotiated basis with Vulcan," Martin Marietta Chief Executive Ward Nye said. He called the offer "full and fair" in an interview and declined to say whether the company would be willing to increase it.

Nye said the "fragile state of the U.S. economy" and uncertainty regarding the pace of recovery made it a good time to combine the two companies, estimating the annual savings from increased efficiencies and other moves at $200 million to $250 million annually within two to three years. Meanwhile, he said the combined company will be positioned for strong results when demand fully revives.

"Our industry has been through an incredibly challenging time" in the last several years, he said. "When volume comes back, it will really be explosive."

Vulcan said in a prepared statement Monday that its board is "carefully" reviewing the offer and will make a recommendation within 10 business days. It urged shareholders to take no action beforehand.

Martin Marietta said in a regulatory filing that talks between Nye and Vulcan Chairman and CEO Don James began last year but in May, James said Vulcan would be interested only in a deal that gave it most of the senior management positions, and retained James as chairman and CEO, for a transitional period and that offered no premium to Martin Marietta shareholders.

Vulcan is bigger than Martin Marietta, with total reserves of 14.7 billion tons and 2010 revenue of $2.56 billion, compared to 13.6 billion tons of reserves for Martin Marietta and total 2010 revenue of $1.78 billion. Still, Vulcan has substantially more debt, $2.8 billion compared to $1.05 billion, and its shares have slipped 36% since the start of 2010 through Friday, about double the percentage decline for Martin Marietta.

Combined, the two companies would constitute the biggest producer of aggregates in the world based on volume.

HeidelbergCement AG (HDELY, HEI.XE) of Germany is the biggest producer, with 264 million tons in 2010. A Martin Marietta-Vulcan combination would have had 278 million tons last year.

Meanwhile, Martin Marietta said Monday that it also filed lawsuits "seeking to ensure that Vulcan's shareholders have the opportunity to directly assess Martin Marietta's offer."

If the hostile takeover doesn't work, Martin Marietta added, it plans to seek to replace five members of Vulcan's board next year. Vulcan has a staggered board, meaning the 10-member board can't be replaced at one time and only five directors are up for re-election at next year's annual meeting.

Martin Marietta's offer Monday calls for directors from both companies to serve on the combined company's board. Further, it proposes that James serve as chairman and that Nye serve as president and CEO.

Martin Marietta said it intends to maintain its dividend, which it said would be 20 times Vulcan's current level.

Deutsche Bank AG (DB, DBK.XE), J.P. Morgan Chase & Co. (JPM) and Skadden Arps Slate Meagher & Flom are advising Martin Marietta.

-By Bob Sechler, Dow Jones Newswires; 512-258-1690; bob.sechler@dowjones.com

--Ben Fox Rubin, Shira Ovide and Gina Chon contributed to this article.

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