Vulcan rejects Martin Marietta $5 billion bid

Thu Dec 22, 2011 3:50pm EST

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(Reuters) - Vulcan Materials Co (VMC.N) rejected Martin Marietta Materials Inc's (MLM.N) nearly $5 billion takeover bid, arguing that the all-stock bid undervalues the company and overstates the potential cost savings of a deal.

Vulcan's rejection of Martin Marietta's offer was widely expected, as the Birmingham, Alabama-based company had earlier indicated through court filings that it was not happy with the deal offered.

Shares of Vulcan, which have gained about 16 percent since the December 12 Martin Marietta offer, were up 0.3 percent at $39.21 on Thursday on the New York Stock Exchange.

Martin Marietta shares were down 0.7 percent at $75.64, meaning their bid is currently worth $37.82 for each Vulcan share. That is about 3 percent below Vulcan's current share price.

"The offer is way too low," Vulcan CEO Don James said in an interview. He said the bid ignored the value of Vulcan's reserves, its earnings power during periods of economic recovery and execution risk from possible asset sales.

"It would dilute the much faster growth that Vulcan shareholders would enjoy on their own with a much lower growth profile from Martin Marietta," James said.

Vulcan, the largest U.S. producer of sand, gravel and other construction aggregates, said the premium offered was significantly lower compared with previous transactions in the construction materials industry.

In a separate statement, Martin Marietta said Vulcan's rejection does not change its view on the deal.

Martin Marietta CEO Ward Nye said that while it believes its current bid is "appropriate and compelling, we would consider in good faith demonstrable evidence of additional value."

Nye said Vulcan's board was the only hurdle to the deal and he does not expect any significant regulatory or legal troubles, but Vulcan said the combination of the two largest players in the U.S. market would create antitrust uncertainty about the completion of the deal.

"It makes sense that they do not want to go ahead with the deal as it is proposed," Morningstar's Elizabeth Collins said.

The analyst said Vulcan is concerned about how much the companies would need to divest, "given some geographic overlap."

The company said it already has the value that Martin Marietta claims will accrue after the transaction, and the synergy claims were aggressive and carried high execution risk.

On December 12, Martin Marietta claimed that the deal could cut as much as $250 million of costs each year, when it offered 0.5 share of its stock for each Vulcan share, to build the world's largest construction aggregates producer.

Vulcan and Martin Marietta have seen their earnings power sag since 2007, when the U.S. housing market collapsed.

The construction materials companies also depend on highway funding and may benefit from consolidation, with little sign of a U.S. highway bill being passed in the near term.

According to a regulatory filing by Martin Marietta, the companies had discussed the possibility of a deal since 2002, with talks intensifying over the last 18 months.

Vulcan broke off talks in recent months, as the companies could not agree on the terms for a deal or leadership roles.

(Reporting by Megha Mandavia in Bangalore and Michael Erman in New York; Editing by Joyjeet Das and Richard Chang)

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