Court Backs Ruling on Vulcan Takeover

Zacks

Vulcan Materials Corp. (VMC) recently announced that a court has denied rival Martin Marietta Materials, Inc. (MLM) motion to seek a stay of a recent ruling. This restricts Martin Marietta by at least four months to take over Vulcan.

Last week the Delaware Court of Chancery had passed a ruling barring MartinMarietta to proceed with its attempt to take over Vulcan by at least four months. Martin Marietta intended to appeal the ruling and seek a stay of the court’s decision. However, the court has denied Martin Marietta's motion for stay pending appeal. Martin Marietta was also trying to nominate its directors to Vulcan’s board. The recent order requires Martin Marietta to terminate the offer and also withdraw exchange offer, proxy materials, regulatory filings as well as the board nominations.

In a hostile move, in December 2011, Martin Marietta proposed to purchase all outstanding shares of Vulcan, the nation’s largest producer of construction aggregates, at a fixed exchange ratio of 0.50 shares of Martin Marietta common stock for each Vulcan common share. Vulcan management however found the offer grossly inadequate.

Had Martin Marietta succeeded in its attempts, its four directors would have contested in the election at the upcoming Vulcan annual meeting in June this year. However, with the stay denied, Martin Marietta’s attempt to nominate its directors to Vulcan’s board will most probably be delayed until the next annual meeting.

Our Recommendation

We currently have a Neutral recommendation on Vulcan. The stock carries a Zacks #3 Rank in the near term (‘Hold’ rating).

We are encouraged by the company’s better-than-forecast first-quarter results, in particular the impressive performance at the Aggregates segment which is slowly gaining momentum. We also like the company’s expanded cost initiatives which will improve the overall credit profile of the company in the long run. Though public construction spending remains stable, low levels of growth in the private sector are still a concern. This combined with rising costs of energy and other raw materials as well as the company’s high debt load keeps us on the sidelines. At the end, we maintain our Neutral recommendation on the stock.

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