Martin Marietta's Vulcan appeal seen as long shot

WILMINGTON, Delaware Wed May 30, 2012 1:40pm EDT

WILMINGTON, Delaware (Reuters) - Martin Marietta Materials Inc (MLM.N) may have little chance for success when it goes to Delaware's Supreme Court on Thursday for what could be a last-gasp attempt to revive its $4.5 billion hostile bid for Vulcan Materials Co (VMC.N).

Martin Marietta, which wants to complete the deal to become the world's biggest producer of sand, gravel and other construction materials, hopes to reverse a ruling made earlier this month by Delaware's Court of Chancery. In that decision, Judge Leo Strine blocked the company from pursuing the hostile bid and a proxy contest for four months as punishment for violating confidentiality agreements with Vulcan.

"I think that there is very little chance Martin Marietta will succeed on appeal," said corporate law specialist David Robbins, a partner with law firm Bingham McCutchen in Los Angeles, who is not involved in the case.

Vulcan said the Chancery Court had made the right decision.

A Martin Marietta spokesman declined to comment on Wednesday.

Martin Marietta also needs the state's high court to delay the Vulcan shareholders meeting, which is scheduled for Friday, so it can solicit proxies for its four nominees to Vulcan's 10-member board.

The proxy contest was central to Martin Marietta's hostile takeover strategy. It wanted to elect its allies to Vulcan's board so they could press for Martin Marietta's offer to be accepted.

Vulcan has a staggered board, meaning not all directors are elected in the same year, so Martin Marietta would need two annual meetings to gain a majority.

"If the Supreme Court doesn't rule in Martin Marietta's favor ... I would have a hard time thinking Martin Marietta would pursue the bid," said Garik Shmois, a stock analyst with Longbow Research who follows both companies.

The legal dispute started in December, when Martin Marietta offered one-half of a share of its stock for each share of Vulcan, and launched the proxy contest. The companies immediately landed in court, with Vulcan claiming its rival violated two confidentiality agreements in preparing its bid and in its public filings.

The confidentiality agreements were signed in April and May of 2010, when the two companies entered friendly merger talks.

Vulcan walked away from those talks in the middle of last year over disputes over who would run the combined company and doubts about potential cost savings, which were the main driver of the deal.

Martin Marietta argued in court papers that Strine, the chief judge of the Chancery Court, misinterpreted the language of the confidentiality agreements in a way to include a common provision the two companies had excluded -- a standstill agreement. Such agreements prevent a party that has received confidential information from using that information to make an unsolicited bid.

Delaware's Supreme Court will review Strine's 138-page decision to determine whether Strine could have reasonably reached the conclusion he did.

"Strine is a highly regarded judge who is not often reversed," said Mike Kelly, a Wilmington attorney with McCarter & English, who is not involved in the case. "The standard for reversal is abuse of discretion, which is a very tough standard for reversal."

The Supreme Court justices are expected to give deference to Strine's determinations of the facts.

"Personally, I think it will be hard for them to overturn it because it was so fact-intensive," said Roland Hlawaty, a partner with Milbank, Tweed, Hadley & McCloy in New York, said of Strine's ruling. Hlawaty is not involved in the case.

Shmois noted that Martin Marietta has hit several hurdles recently. In addition to the Strine ruling, famed short-seller David Einhorn said on May 16 that Martin Marietta stock was overvalued. The shares fell 15 percent following Einhorn's comments, which in turn cut the value of the offer for Vulcan.

There are also signs Vulcan's management is running the company better, he said, citing its success with a cost-cutting program.

"Vulcan has more power at this point," he said.

(Editing by Martha Graybow and Phil Berlowitz)

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