Martin Marietta Materials Inc (MLM.N) is barred for four months from pursuing its proxy contest and $5.3 billion hostile bid for construction materials maker Vulcan Materials Co (VMC.N), a Delaware judge ruled on Friday.
Delaware Judge Leo Strine found that Martin Marietta had violated a nondisclosure agreement with its larger rival and used confidential information in forming its bid and proxy fight.
Strine's ruling prevents Martin Marietta from pursuing its tender offer for Vulcan's stock for four months. The judge also blocked Martin Marietta from proposing candidates for Vulcan's board for four months, essentially postponing any proxy contest until 2013.
Vulcan's annual general meeting is scheduled for June 1. Martin Marietta had proposed candidates for each of the four seats up for election to the 10-member board.
Strine said during closing arguments that he expected an appeal to Delaware's Supreme Court.
Martin Marietta, based in Raleigh, North Carolina, and Birmingham, Alabama-based Vulcan did not immediately issue statements on the ruling, which was heard in Delaware by mutual agreement.
Martin Marietta made an unsolicited, all-stock bid for Vulcan in December, saying that creating the world's largest producer of sand, gravel and other building materials would provide up to $250 million in cost savings to investors.
Vulcan rejected the bid and said Martin Marietta had violated confidentiality agreements in preparing the deal. It had asked the Chancery Court to enjoin its rival for at least four months.
"An examination of all the evidence here convinces me that Martin Marietta is not being held to any promise it did not make," Strine said in a 139-page opinion.
The confidentiality agreements were signed when the two had entered serious deal talks in April 2010 and exchanged sensitive information.
Vulcan walked away from those talks in the middle of last year, partly because it felt cost savings were being overestimated and because it had concerns about regulatory hurdles.
During a week-long trial, Martin Marietta presented itself as the more nimble, entrepreneurial company coming off several good years. It argued that its Chief Executive Howard Nye, who took over in early 2010, could deliver cost savings by overhauling a flabby rival which had lost its way.
Vulcan has countered that Nye was seizing on a low-point in the industry's cycle and feared that Vulcan would achieve cost savings on its own.
During the trial, Strine probed whether the Martin Marietta CEO was trying to combine the companies to ensure his tenure in the boardroom.
Once Martin Marietta went hostile in December, Vulcan argued that its rival had breached the confidentiality agreement to formulate its bid and proxy contest.
Martin Marietta has rejected that reading of the agreement, and argued that the information it used in making its bid was publicly available.
The case is Martin Marietta Inc v Vulcan Materials Inc, Delaware Chancery Court, case no. 7102.
(Reporting by Tom Hals in Wilmington, Del.; Editing by Richard Chang and Matthew Lewis)