Martin Marietta Materials, Inc. · NYSE:MLM
Martin Marietta Materials — Merger or Acquisition (January 2012)
38 slides from Martin Marietta Materials's merger presentation, Jan 10, 2012
Slide 1: Update on Martin Marietta Materials' Proposed Combination with Vulcan Materials
Update on Martin Marietta Materials’ Proposed Combination with Vulcan Materials January 10, 2012 Rock Solid Fundamentals. Positioned for the Long Term.
Slide 2: Martin Marietta's Proposal is Compelling
Martin Marietta’s Proposal is Compelling – Provides Significantly More Value and Less Risk than Vulcan on a Standalone Basis Note: Throughout the presentation, ― ‖ is used to identify matters which Martin Marietta believes represent flaws in Vulcan’s analysis in defense of its rejection of the Marti
Slide 3: Our Proposal Provides Vulcan's Shareholders with Significant Value and Less Risk
Our Proposal Provides Vulcan's Shareholders with Significant Value and Less Risk • Our proposal is a stock-for-stock merger, not a cash acquisition — results in Vulcan shareholders owning ~58% of the combined company • Our proposal creates significant value for Vulcan shareholders, including: — $1.4
Slide 4: Our Proposal Provides Vulcan's Shareholders with Significant Value and Less Risk (continued)
Our Proposal Provides Vulcan's Shareholders with Significant Value and Less Risk (continued) • Our proposal is not opportunistic – our proposed exchange ratio of 0.50 is higher than 2/3 of the Vulcan / Martin Marietta implied exchange ratios based on market values since current discussions commenced
Slide 5: Combination Creates Significantly More Value than Vulcan's Promised Cost-Saving Plan
Combination Creates Significantly More Value than Vulcan’s Promised Cost-Saving Plan Total Value Value Creation to Vulcan Shareholders ($B) ($/share) $9.75B Synergies $2.03B Vulcan $10.43 $5.71B per Vulcan Vulcan $4.36B ~58% share 4 ownership Martin Martin Marietta Marietta $4.04B $2.31 $3.37B ~42%
Slide 6: Martin Marietta Has Significantly Outperformed Vulcan on a Consolidated Basis
Martin Marietta Has Significantly Outperformed Vulcan on a Consolidated Basis Gross Profit (% of Net sales) Adj. SG&A (% of Net sales) 1 13.5% 25.3% 12.6% 12.6% 21.7% 22.6% 20.8% 19.2% 17.5% 9.9% 9.3% 12.5% 10.9% 8.6% 8.3% 8.1% 2008 2009 2010 LTM 09/30/11 2008 2009 2010 LTM 09/30/11 Adj. EBIT (% of
Slide 7: Rhetoric vs. Reality – The Past is Not Prologue to the Future
Rhetoric vs. Reality – The Past is Not Prologue to the Future MARTIN MARIETTA MATERIALS 7
Slide 8: Rhetoric vs. Reality
Rhetoric vs. Reality VULCAN’S RHETORIC THE REALITY Transaction appropriately values Vulcan and its prospects • Martin Marietta’s stock-for-stock offer allows Vulcan shareholders to meaningfully participate in the upside potential of the combination • Martin Marietta’s offer is at a premium to Vulcan
Slide 9: Vulcan's Valuation is at a Cyclical High
Vulcan’s Valuation is at a Cyclical High Vulcan Share Price vs. Valuation Vulcan Today $150 21x • Near all-time high Vulcan share price Housing bubble Unaffected EBITDA multiple Vulcan TEV / NTM EBITDA drove Vulcan’s multiple: 17.0x Debt / Adj. EBITDA 1 “peak” • Excessive leverage resulting in ―junk
Slide 10: The Proposed Exchange Ratio is Greater than 2/3 of the Market Exchange Ratios
The Proposed Exchange Ratio is Greater than 2/3 of the Market Exchange Ratios During the Period Since Latest Discussions Commenced 0.65x Represents trading dates immediately prior to meetings between Mr. Nye and Mr. James identified in Vulcan’s Schedule 14D-9 filed on December 22, 2011 0.60x Vulcan
Slide 11: Martin Marietta's Proposal is a Premium to Exchange Ratios Implied by Street Estimates
Martin Marietta’s Proposal is a Premium to Exchange Ratios Implied by Street Estimates Wall Street Consensus Estimates Analysts’ Relative Price Targets 1 Price Target Martin Vulcan Martin Marietta’s ($M) Marietta Offer of 0.50 as a Martin Implied Premium to Implied Revenue $1,797 $2,527 Analyst Mari
Slide 12: Vulcan Grossly Mischaracterizes the Attractiveness of the Premium Offer
Vulcan Grossly Mischaracterizes the Attractiveness of the Premium Offer to its Shareholders • Precedent transactions identified by Vulcan – all cash consideration – are not comparable to Martin Marietta’s offer • In contrast to Vulcan’s selected precedents, true comparable transactions have the foll
Slide 13: Rhetoric vs. Reality
Rhetoric vs. Reality VULCAN’S RHETORIC THE REALITY Vulcan has made unrealistic assumptions for the level and timing of the economic recovery • Achieving prior peak financial performance would require a repeat of the housing bubble • Timing of a construction recovery is expected to be ―Martin Mariett
Slide 14: Achieving Prior Peak Financial Performance Would Require a Repeat of the Housing Bubble
Achieving Prior Peak Financial Performance Would Require a Repeat of the Housing Bubble Housing Bubble... Current ...Future 2,273K total housing starts 1 685K total housing starts 1 McGraw-Hill total housing start forecasts 4 ― FL: 266K total housing starts 2 ― FL: 40K total housing starts 2 ―
Slide 15: Vulcan Mischaracterizes its Relative Performance Coming Out of the 2001 Recession
Vulcan Mischaracterizes its Relative Performance Coming Out of the 2001 Recession Martin Marietta Showed Strong Recovery as Evidenced by 2002 – 2006 CAGRs 16.1% Gross profit 14.7% 21.4% Operating earnings 1 16.6% 29.9% Net income 29.0% Martin Marietta Vulcan Note 1: Based on reported operating earni
Slide 16: Vulcan is a Very Different Company Today Compared to the 2001 Recession
Vulcan is a Very Different Company Today Compared to When it Came Out of the 2001 Recession VULCAN M A R T I N M A R I E T TA VULCAN LTM LTM LTM LTM Change Change 12/31/02 9/30/11 12/31/02 9/30/11 TEV / NTM EBITDA 1 8.2x 11.4x 3.2x TEV / NTM EBITDA 1 7.9x 17.0x 9.1x Leverage 2 2.4x 3.0x 0.6x Leverag
Slide 17: Both Companies Well-Positioned to Benefit from Estimated Long-Term Demographic Growth
Both Companies Well-Positioned to Benefit from Estimated Long-Term Demographic Growth M A R T I N M A R I E T TA VULCAN 2010 – 2020 2010 – 2020 % of 2010 Estimated % of 2010 Estimated Top States Top States Net Sales Population Net Sales 2 Population Growth Growth Texas 17% 19.3% California 20% 11.8%
Slide 18: Rhetoric vs. Reality
Rhetoric vs. Reality VULCAN’S RHETORIC THE REALITY Vulcan Shareholders Will Receive Key Elements of Significant Value from Martin Marietta’s the Proposal Proposed Combination Vulcan Ignored $2B of synergy value created through $200 - $250M of expected annual synergies X Impact of regulatory divestit
Slide 19: Vulcan is Underestimating the Synergy Potential in the Combination
Vulcan is Underestimating the Synergy Potential in the Combination Synergy Estimates Based on …and are In Line With Our Synergy History and Reasonable Assessment… Expectations Previously Disclosed Total $200 - $250M Total $200 - $250M Achievable Synergies Achievable Synergies Reasonable Assessment 1
Slide 20: Vulcan Failed to Align its Cost Structure with its Declining Revenue
Vulcan Failed to Align its Cost Structure with its Declining Revenue $400 $23M cost savings (6%) over 4 years $350 50 $300 $250 $50M annual synergies from (SAG, $M) $200 Florida Rock 374 $150 301 $100 $50 $0 1 2007 2011 (38%) Net Sales $3,851M $2,378M Vulcan has only reduced SG&A 6% despite a 38% de
Slide 21: Martin Marietta's Demonstrated Track Record of Superior Cost Management
Martin Marietta’s Demonstrated Track Record of Superior Cost Management Will Drive the Realization of Synergies Annual SG&A as a % of Net Sales 1 2007 – 2011 YTD SG&A as a % of Net Sales 1 Martin Marietta: 8.4% Vulcan: 11.2% 13.5% 12.6% 12.0% 9.9% 9.3% 9.3% 8.6% 7.9% 8.0% 8.1% 2007 2008 2009 2010 YT
Slide 22: Martin Marietta Believes Regulatory Approval Will Not Be an Obstacle
Notwithstanding Vulcan’s ―Scare Tactics‖, Martin Marietta Believes Regulatory Approval Will Not Be an Obstacle • Aggregates industry acquisitions are routinely approved with divestitures • Martin Marietta has a history of working successfully with DOJ and is proactively cooperating with DOJ’s review
Slide 23: Engagement by Vulcan is the Path to Completion
Engagement by Vulcan is the Path to Completion Vulcan’s Alleged Gating Item to Reduced End Result – Ordinary “Litany of Conditions” Conditionality Course Conditions for a Negotiated Transaction Merger Agreement Condition US Antitrust Condition Minimum Tender Condition MLM Shareholder Approval Condit
Slide 24: Combined Financial Strength Provides Flexibility that Vulcan Does Not Currently Have
Combined Financial Strength Provides Flexibility that Vulcan Does Not Currently Have 9/30/2011 MARTIN ($M) MARIETTA VULCAN Combined 1 Combined Company’s Balance Sheet Debt $1,045 $2,821 $3,867 Sufficient liquidity Net Debt $989 $2,669 $3,658 No maintenance-based covenants through anticipated ass
Slide 25: This Transaction is Credit-Enhancing to Vulcan Shareholders
This Transaction is Credit-Enhancing to Vulcan Shareholders Rating Agencies’ Reaction Market Recognition of to Proposed Transaction Credit-Enhancing Proposal 800 ―The positive CreditWatch listing for Vulcan Materials reflects what we view as the 700 proposed combined company's generally Vulcan 5-yea
Slide 26: Martin Marietta Has Maintained a Steady Dividend History
Martin Marietta Has Maintained a Steady Dividend History and Expects to Pay a Meaningful Dividend Dividend Paid Per Share MARTIN MARIETTA ($) VULCAN ($) 1.96 1.84 1.60 1.60 1.60 1.49 1.48 1.48 Vulcan 1.24 recently cut 1.16 its quarterly 1.01 1.00 dividend to 0.86 $0.01 per share 0.04 1 2005 2006 200
Slide 27: The Real Conclusion – Ignore the Rhetoric and Focus on the Reality
The Real Conclusion – Ignore the Rhetoric and Focus on the Reality MARTIN MARIETTA MATERIALS 27
Slide 28: The Bottom Line: Vulcan's Defense of its Rejection is Fundamentally Flawed
The Bottom Line: Vulcan’s Defense of its Rejection of Martin Marietta’s Proposed Business Combination is Fundamentally Flawed Vulcan… ― Vulcan’s fundamental business position ― Merits of Vulcan’s ―too little, too late‖ organizational simplification plan …overstates ― Deal conditionality risk ― Antit
Slide 29: The Solution
The Solution Vulcan’s Board should promptly commence good-faith negotiations in a real effort to reach mutual agreement on a combination with Martin Marietta MARTIN MARIETTA MATERIALS 29
Slide 30: Appendix
Appendix 30
Slide 31: Martin Marietta EBITDA & EBIT Reconciliation
Martin Marietta EBITDA & EBIT Reconciliation (dollars in millions) LTM For the Year Ended December 31, 9/30/2011 2010 2009 2008 2007 2002 Net earnings attributable to entity $ 82.3 $ 97.0 $ 85.5 $ 176.3 $ 262.7 $ 86.3 Add back: Interest expense 62.2 68.5 73.5 74.3 60.9 44.0 Income tax expense for co
Slide 32: Martin Marietta Free Cash Flow Reconciliation
Martin Marietta Free Cash Flow Reconciliation Free cash flow calculated as net cash provided by operating activities less capital expenditures. (dollars in millions) LTM For the Year Ended December 31, 9/30/2011 2010 2002 Net cash provided by operating activities $ 247.1 $ 269.8 $ 203.6 Capital expe
Slide 33: Vulcan EBITDA & EBIT Reconciliation
Vulcan EBITDA & EBIT Reconciliation (dollars in millions) LTM For the Year Ended December 31, 9/30/2011 2010 2009 2008 2007 2005 2003 2002 2001 Net (loss) earnings $ (89.9) $ (96.5) $ 30.3 $ 0.9 $ 450.9 $ 389.1 $ 195.0 $ 169.9 $ 222.7 Add back: Interest expense 210.0 180.7 173.0 169.7 41.6 20.5 49.6
Slide 34: Vulcan Free Cash Flow Reconciliation
Vulcan Free Cash Flow Reconciliation Free cash flow calculated as net cash provided by operating activities less capital expenditures. (dollars in millions) LTM For the Year Ended December 31, 9/30/2011 2010 2002 Net cash provided by operating activities $ 196.6 $ 202.7 $ 458.0 Capital expenditures
Slide 35: Vulcan SG&A Reconciliation
Vulcan SG&A Reconciliation For the Year Ended December 31, YTD LTM 2010 2009 2008 2007 2002 9/30/2011 9/30/2011 SG&A, as reported $ 327.5 $ 321.6 $ 342.6 $ 289.6 $ 162.7 $ 221.3 $ 301.4 R&D expense, as disclosed in notes to financials 1.6 1.5 1.5 1.6 1.2 1.2 1.6 Adjusted SG&A $ 326.0 $ 320.1 $ 341.0
Slide 36: Precedent All-Stock Transactions
Precedent All-Stock Transactions Announced Merger Parties Announced Merger Parties 2011 Frontier Oil Corp Holly Corp 2006 Peoples Energy Corp WPS Resources Corp 2010 Whitney Holding Corp Hancock Holding Co 2005 Viking Energy Royalty Trust Harvest Energy Trust 2010 NSTAR Inc Northeast Utilities 2005
Slide 37: Cautionary Note Regarding Forward-Looking Statements
Cautionary Note Regarding Forward-Looking Statements This presentation may include "forward-looking statements." Statements that include words such as "anticipate," "expect," "should be," "believe," "will," and other words of similar meaning in connection with future events or future operating or fi
Slide 38: Important Additional Information
Important Additional Information This presentation relates to the Exchange Offer by Martin Marietta to exchange each issued and outstanding share of common stock of Vulcan for 0.50 shares of Martin Marietta common stock. This presentation is for informational purposes only and does not constitute an
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