Martin Marietta Doubts Vulcan Can Recover as in the Past

Martin Marietta Materials, Inc. (NYSE: MLM) today issued the following statement in response to the new shareholder presentation released by Vulcan Materials Company (NYSE: VMC).

"Vulcan's shareholder presentation suffers from numerous inaccuracies and mischaracterizations, which we will address promptly. Most importantly, the basic theme — the past is prologue to the future — is fundamentally flawed.

"Pointing to past cyclical recoveries in this industry, Vulcan's presentation touts its performance on historical recoveries but in footnotes Vulcan admits that ‘historical performance is not a guarantee or assurance of future performance nor that previous results will be attained or surpassed.'

"This last statement recognizes the reality that today's Vulcan is not the same company that came through the past cyclical recoveries. Specifically, Vulcan today — and on a standalone basis going forward — is burdened with:

  • A highly levered balance sheet;
  • Cash constraints—which required the virtual elimination of its dividend;
  • A "junk" credit rating;
  • A steadily falling unaffected stock price—reflecting Vulcan's risk profile and lack of profitability;
  • A "too little, too late" cost reduction program—which itself is fundamentally misconceived;
  • And most significantly, no clear prospect, as to either timing or level, of the life-line it is looking to for rescue of its standalone future value (inadvisably in light of the circumstances)—a strong and sustained economic recovery.

"In short, Vulcan fails to factor into its overstated view of its potential value, and takes no responsibility for, the reality of today's Vulcan or the challenges it faces.

"We also can't help but note that despite Vulcan's statements that its stock is trading at a 10-year low, its current unaffected EBITDA multiple is meaningfully higher than Martin Marietta or Vulcan's historical multiples, fully reflecting any potential higher standalone growth prospects.

"The Martin Marietta proposal offers a reality-based opportunity to Vulcan shareholders who will receive an upfront premium, 58% ownership in the combined company, a meaningful dividend and the synergies and any cyclical recovery that would benefit the combined company."

As previously announced, on December 12, 2011, Martin Marietta commenced an exchange offer in which each outstanding share of Vulcan will be exchanged for 0.50 Martin Marietta shares. The offer represents a premium for Vulcan shareholders of 15% to the average exchange ratio based on the closing share prices for Vulcan and Martin Marietta during the 10-day period ended December 9, 2011 and 18% to the average exchange ratio based on the closing share prices forVulcan and Martin Marietta during the 30-day period ended December 9, 2011. Martin Marietta also intends to maintain the dividend for the combined company at Martin Marietta's current rate of $1.60 per Martin Marietta share annually, or the equivalent of $0.80 per Vulcan share annually, based on the proposed exchange ratio. This dividend rate is 20 times Vulcan's current level.

 

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