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Is Bigger Better?

The news that Martin Marietta Materials was seeking a hostile takeover of Vulcan Materials hit like a ton of aggregate, not just within our industry, but in the national media as well. There have been some major mergers and takeover attempts recently that made big news, most notably the failed AT&T/T-Mobile deal. But this one hits close to home.

We sketch out the details of the takeover, which began with congenial talks on merger possibilities more than a year ago, on page 14 of this issue in a special report, but the news is coming so fast and furious, it’s hard to keep up with it. The latest details emerging at press time focus on Vulcan’s response to the takeover attempt.

Vulcan’s Board of Directors, after consultation with its independent financial and legal advisors, unanimously determined that the Martin Marietta’s exchange offer to acquire Vulcan at a fixed exchange ratio of 0.50 shares of Martin Marietta common stock for each Vulcan common share is inadequate and not in the best interests of Vulcan and its shareholders. Accordingly, the Board strongly recommends that shareholders not tender any shares to Martin Marietta.

“Our Board's position is clear – shareholders should reject Martin Marietta's lowball and opportunistic exchange offer,” said Donald M. James, chairman and chief executive officer of Vulcan Materials. “The offer, made at a low point in the economic and industry cycle, does not come close to appropriately compensating shareholders for Vulcan's strategic locations and leading positions in high-growth markets, unparalleled reserve base, and proven ability to deliver rapid profitability and cash flow growth in economic recoveries. Martin Marietta is obviously trying to take value that rightly belongs wholly to Vulcan shareholders.”

National analysts offer some interesting perspective on the situation. Will the FTC allow such a deal to go through? Will the lack of major market overlap work in favor of a merger? Would the industry really be competitively served through the creation of a mega-aggregates company?

Speaking from a simple business perspective, the efficiencies of scale would result in major positives for the balance sheet; and the lower energy costs for the combined companies would be significant, and energy costs are a major issue right now.

Suffice it to say that the legal maneuvering is far from over, and there will be more than a few surprises, and unfortunately some serious bad blood that will result from the final outcome. We’ll be watching with great interest.

Mark S. Kuhar, editor
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