Raleigh-based Martin Marietta Materials announced today that it has proposed merging with one of its chief competitors, Vulcan Materials, to create one of the largest providers of construction materials in the world.
The hostile takeover would give Vulcan shareholders a 58 percent ownership stake in the combined company.
The proposal has the unanimous support of Martin Marietta's Board of Directors.
Under the terms of the deal, each outstanding share of Vulcan will be exchanged for 0.50 Martin Marietta shares.
The bid values Vulcan at $36.685 a share based on Martin Marietta's closing stock price of $73.37 on Friday.
Martin Marietta and Vulcan officials began discussing a possible merger more than a year ago, and Martin Marietta CEO Ward Nye said today that the decision to take the deal directly to Vulcan's shareholders came after Vulcan officials halted discussions.
“We are bringing our proposal directly to Vulcan’s shareholders after Vulcan ceased participating in private discussions toward a negotiated transaction, which commenced over a year and a half ago,” Nye said.
Vulcan is the larger of the two companies, with a market capitalization of roughly $4.75 billion. Martin Marietta's market cap is now $3.45 billion.
The proposal calls for the combined company to be based in Raleigh. The company would also continue to have a major presence in Birmingham, Alabama, where Vulcan is based.
Vulcan CEO Don James would be chairman of the board of the combined company while Nye would be CEO under the proposal.
Martin Marietta says the deal would result in $200 million to $250 million in annual cost savings.
“The combination of Martin Marietta and Vulcan is a compelling opportunity for both companies’ shareholders, customers, employees and the communities we serve," Nye said in a release. "By bringing together our highly complementary assets, we have the opportunity to create the global leader in aggregates, led by the best team in the industry, drawn from both companies."
Martin Marietta and Vulcan produce rock, gravel and other materials used to build roads, subdivisions and commercial buildings. The global economic downturn caused demand for such materials to plummet.
The industry also faces uncertainty over the level of government spending going forward. Martin Marietta and Vulcan's businesses are tied closely to state and federal infrastructure spending for projects such as roads.
The last long-term federal highway bill expired in 2009, and the most recent continuing resolution extending it expires March 30.
Nye said the challenges the industry faces makes the proposed merger of Vulcan and Martin Marietta all the more compelling.
"Recent events, including the fragile state of the U.S. economy, the lack of visibility as to when a sustainable recovery will take place, and the uncertainty surrounding government spending on infrastructure projects, only strengthen the rationale behind a combination," he wrote in his letter to Vulcan shareholders.
Vulcan shares were up more than 20 percent in trading this morning. Martin Marietta's stock was up about 5 percent.