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- 2011 - December - 19th -
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Martin Marietta attempts hostile takeover of Vulcan Materials

The holiday season can be a slow time for business news but fortunately for us, a hostile takeover attempt heated things up last week.

After a year and a half of behind-the-scenes negotiations fell apart, Martin Marietta Materials Corp. last week announced a $4.8 billion buyout bid for Vulcan Materials Co. The combination would create a construction materials company with about $4 billion in annual sales.

You will recall the last major deal for Birmingham, Ala.-based Vulcan was its $4.2 billion friendly acquisition of Jacksonville-based Florida Rock Industries Inc. in 2007.

That deal worked out well for the majority of Florida Rock shareholders, but Vulcan stockholders haven’t been so fortunate over the past four years.

The closing of the merger coincided with the collapse of the housing market, cutting the demand for construction materials. It also saddled Vulcan with a large amount of debt.

Vulcan’s earnings dropped from $4.54 per diluted share in 2007 to 1 cent in 2008 and 25 cents in 2009. It had a net loss in 2010 and is headed for another loss this year.

Vulcan’s stock peaked at $128.62 in April 2007, two months after agreeing to buy Florida Rock, but it was trading in the low $30s before Martin Marietta announced its bid last Monday. Its quarterly dividend, which was 46 cents per share when it closed the Florida Rock deal, dropped to a penny per share in October.

In the Florida Rock deal, Vulcan paid $67 per share in cash to buy 70 percent of Florida Rock’s shares and issued 0.63 shares of Vulcan stock for the remaining 30 percent of Florida Rock’s shares. While Florida Rock shareholders who received cash made out pretty well at $67, those 30 percent who received and still hold Vulcan stock probably aren’t very happy, since 0.63 shares of Vulcan were worth only about $21 before the Martin Marietta offer.

Raleigh, N.C.-based Martin Marietta is offering a half-share of its stock for every Vulcan share. Based on Martin Marietta’s stock price when the offer was announced, that valued the deal at $36.69 per Vulcan share.

In a prospectus filed with the Securities and Exchange Commission, Martin Marietta said its offer represents a 15 percent premium for Vulcan shareholders, based on the average prices of both companies’ stock in the 10 days prior to the offer.

In addition, Martin Marietta has maintained a $1.60-per-share annual dividend, or 80 cents per half-share. That would be a big improvement for Vulcan shareholders over their current 1 cent quarterly dividend.

In a letter to Vulcan CEO Donald James, Martin Marietta said the merger would be good for both companies in a period of uncertainty over the timing of an economic recovery and on government spending on road projects.

The prospectus states that Vulcan and Martin Marietta discussed a possible merger as far back as 2002 and began serious talks in April 2010. As discussions continued, one source of disagreement was over who would run the combined company, James or Martin Marietta CEO Ward Nye.

The last meeting between the companies was in May 2011 and in August, Martin Marietta began exploring the possibility of taking the offer directly to Vulcan shareholders, according to the prospectus.

In response to Martin Marietta’s offer to shareholders, Vulcan announced that its board would evaluate the offer and make a recommendation to shareholders within 10 business days.

BB&T Capital Markets analyst John Kasprzak said in a research note that a merger “makes sense in concept.”

“The ongoing downturn in construction has been brutal and the outlook for a meaningful recovery remains uncertain, in our opinion, leaving companies in the industry to try and further right-size their businesses in the face of this protracted downturn,” he said.

“Industry participants are still struggling with the reality that a near-term improvement does not seem to be in the cards,” Kasprzak added.

While the Martin Marietta offer was valued at $36.69 a share, Vulcan’s stock was trading above $38 for most of last week. So it seems that investors are betting that Martin Marietta will have to increase its offer. Or maybe someone else will come in with a higher bid.

It looks like this story will continue to give us something to talk about through the holidays.

Vulcan continues to run the operations acquired in the Florida Rock deal, known as its Florida Rock division, out of Jacksonville. It employs 885 people in the Florida Rock division, including 73 in Jacksonville.

Disappointing earnings send The Pantry lower

The Pantry Inc.’s stock dropped to its lowest level in three years last week after the North Carolina-based convenience store operator reported a second straight quarter of disappointing earnings.

Adjusted earnings of 37 cents a share for the fourth quarter ended Sept. 29 were 13 cents lower than last year’s fourth quarter and 18 cents lower than the average forecast of analysts surveyed by Thomson Financial.

This followed third-quarter adjusted earnings of 93 cents, which were much lower than the average analysts’ forecast of $1.22.

Not only was fiscal 2011 a disappointment but after last week’s report, the average earnings forecast for fiscal 2012 dropped from $1.56 a share to 87 cents, according to Thomson.

The Pantry operates 1,627 stores in 13 states, mainly under the Kangaroo Express name. It became a major player in Northeast Florida when it acquired the Jacksonville-based Lil’ Champ chain in 1997.

The company currently operates more than 100 stores in the Jacksonville metropolitan area, most of which have been converted to the Kangaroo brand.

BMO Capital Markets analyst Karen Short said 2012 will be a challenging year for The Pantry.

“Despite comfortable liquidity and promising sales at the stores converted to the Fresh format, we believe fiscal 2012 will be a transitional year,” Short said in a research note.

The Fresh format was introduced in some Pantry stores last year to bring upgraded food offerings and better coffee to customers.

One reason that next year will be transitional is that the company is searching for a new CEO after Terrance Marks resigned the position in August.

Short also said that the company is facing increased competition from private companies in the Southeast.

The Pantry’s stock fell as much as $2.35 to $9.52 Tuesday after the earnings report, before closing the day at $10.71. The stock had been trading at about $19 in August before the disappointing third-quarter report.

Stein Mart faces deadline on revised earnings

It’s not as ominous as it sounds, but Stein Mart Inc. last week said it received a notice from Nasdaq that the company is not in compliance with its listing requirements because Stein Mart did not file its third-quarter financial report in a timely matter. But that notice followed the previous week’s announcement that Stein Mart is revising its third-quarter results because a technology-related error caused markdowns to be understated.

Stein Mart has 60 days to regain compliance, and the Jacksonville-based fashion retailer said it intends to file its third-quarter report with the SEC “well within the 60-day required period.”

Connolly resigns as Global Axcess interim co-CEO

Global Axcess Corp. indicated in an SEC filing that Michael Connolly has resigned his position as interim co-CEO “to pursue other career opportunities.”

The other co-CEO, Lock Ireland, will continue as interim chief executive. Connolly will remain on the board of directors.

Jacksonville-based Global Axcess, which operates automated teller machine and DVD kiosk networks, had been operating with the two interim CEOs since George McQuain was forced out from that position in March.

Greene joins PSS board

PSS World Medical Inc. last week added A. Hugh Greene, president and CEO of Baptist Health, to its board of directors.

The Jacksonville-based distributor of medical supplies said Greene’s addition expands its board to nine directors.

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