When it comes to building America, Martin Marietta Materials (MLM) is the model of how a company can be competitive, responsible and meet the needs of shareholders and customers. While currently the nation’s second largest producer of construction aggregates in the United States, it will soon be the largest producer once it completes its hostile takeover of Vulcan Materials Company (VMC). The company supplies crushed stone, sand and gravel for use in building infrastructure projects such as roads, sidewalks and foundations. They also provide asphalt and concrete in select geographic areas.
Martin Marietta Materials has refined the manner in which a construction aggregate producer operates by utilizing a superior management method to control and reduce Selling General and Administrative (SG&A) costs and has posted positive earnings throughout the recent recession. This is in sharp contrast to Vulcan Materials which is now in a negative earnings position and has slashed its dividend whereas Martin Marietta has maintained their dividend at $1.60 per share for the last three years.
It is this consistency of dividend payout that C. Howard Nye, the President, Chief Executive Officer of Martin Marietta attributed in his most recent conference call as one way they have distinguished themselves from other similar firms and that has allowed them to continue to make strategic acquisitions and expand into new market areas despite the extended recession. (http://files.shareholder.com/downloads/MLM/1653827486x0x515611/c5e3dcd4-2c42-41ac-bd14-0613a8c57556/MLM.20111101.pdf)
Other items included an asset exchange agreement with LaFarge (LG: Paris Stock Exchange) that enabled Martin Marietta to expand its market share into the Denver Colorado which is forecast to have above average growth when compared to the national average. This agreement also gave the company significant aggregate sites, vertically integrated hot mix asphalt and ready mix concrete plants and a road paving business in the metropolitan Denver area.
Of particular interest to potential investors of Martin Marietta Materials is their attempt to buy out, via an all stock bid, Vulcan Materials. In the stock offering, Martin Materials is offering ½ a share of Martin for each full share of Vulcan Materials as that represents the approximate value of Vulcan stock compared to Martin Marietta’s. While Vulcan’s management has stated that this is an attempt by Martin Marietta to obtain Vulcan at a bargain price, it may in fact be the preferred choice of many Vulcan stock holders given Martin Marietta’s proven ability to obtain cost savings through effective management.
Another factor that Vulcan stockholders will likely consider is Martin Marietta’s continuance of dividend payments through the recession unlike Vulcan. With an expanding economy there is the probability of Martin Marietta’s dividend policy being more constant and thus an additional source of financial returns. The downside to Martin Marietta stockholders is the significant debt load that Vulcan has which will more than triple the company’s total debt. This debt downside may be offset by some divestitures that Martin Marietta may be required to make in order to obtain regulatory approval. Even without divestitures, the company’s past management practices are a good indication of their ability to control and adjust the size of their debt in order to obtain superior financial performance for stockholders.