Martin Marietta Materials, Inc. MLM and Texas Industries, Inc.
TXI today announced that the Boards of Directors of both companies have
unanimously approved a definitive merger agreement under which Martin Marietta
will acquire all of the outstanding shares of Texas Industries common stock in
a tax-free, stock-for-stock transaction. Under the terms of the merger
agreement, Texas Industries shareholders will receive 0.700 Martin Marietta
shares for each share of Texas Industries common stock they own at closing.
Based on the closing market prices for the shares of both companies on January
27, 2014, and their debt levels as of their most recently completed quarters,
the combined company will have an enterprise value of approximately $8.5
billion.
The combination will create a market leading supplier of aggregates and heavy
building materials, with low-cost, vertically integrated aggregate and
targeted cement operations. With greater geographic and product diversity and
a leading distribution network, the combined company will have uniquely
positioned assets across some of the nation's largest and fastest growing
geographies, such as Texas and California. As market conditions improve, the
combined company will be well-positioned for long-term growth, with a network
in excess of 400 quarries, mines, distribution yards and plants spanning 36
states, Canada, the Bahamas and the Caribbean Islands. With a significant
increase in scale and the potential to achieve substantial synergies, the
combined company will seek to grow faster and more efficiently than either
Martin Marietta or Texas Industries could on a standalone basis.
Based on the closing stock price for Martin Marietta on January 27, 2014, this
consideration would be equivalent to $71.95 of Martin Marietta stock for each
Texas Industries share. The exchange ratio represents a 13 percent premium to
the average exchange ratio implied by the closing prices of Martin Marietta's
and Texas Industries' shares during the last 90 days, and an over 15 percent
premium to the exchange ratio implied by the respective closing stock prices
on December 12, 2013, the day prior to market speculation of a potential
transaction. The transaction reflects an enterprise value of approximately
$2.7 billion, including the assumption of $0.7 billion of Texas Industries'
debt. Upon closing of the transaction, Martin Marietta shareholders are
expected to own approximately 69 percent, and Texas Industries shareholders
are expected to own approximately 31 percent, of the combined company. The
companies expect the transaction to be immediately accretive to Martin
Marietta's earnings per share in 2014, assuming refinancing of Texas
Industries' outstanding debt at or around the closing of the merger and
excluding one-time costs.
Ward Nye, Martin Marietta's President and Chief Executive Officer said, “By
uniting Martin Marietta's and Texas Industries' complementary assets and
leveraging an expanded geographic footprint, we will be even better-positioned
to deliver value to our shareholders and customers. Texas Industries'
aggregates operations are strategically located in high growth markets and fit
well into our existing portfolio, and its cement operations will further
diversify our product and customer mix. Through the significant investments
Texas Industries has made in plant modernization and capacity expansion, it
has achieved leading positions in some of the nation's highest growth markets
while maintaining a low cost profile. As a result of this combination, we will
be poised to capitalize on the strength of our combined aggregates platform as
well as the significant upside potential in the infrastructure, residential
and nonresidential construction segments. We are confident that combining our
companies will accelerate our ability to increase sales and cash flow and
improve margins. We are excited about the opportunities ahead and look forward
to quickly realizing the benefits of this transaction.”
Mel Brekhus, Texas Industries' President and Chief Executive Officer, said,
“Combining with Martin Marietta represents a unique opportunity to create a
more competitive company with a solid, diversified portfolio of assets,
enhanced credit profile and a strong balance sheet. We are confident that we
have found the right partner. This combination will advance our growth
objectives, deliver significant value to all of our stakeholders, and allow
shareholders to participate in the combined company's potential growth and
value creation. In addition, we are pleased that, through this combination,
our shareholders will enjoy a strong dividend distribution. This transaction
will create a larger, stronger entity with enhanced career and professional
development opportunities for employees. I look forward to working closely
with Ward and the proven management teams of both companies to complete the
transaction quickly and to ensure a smooth transition.”
Strategic and Financial Benefits of Transaction
* The Leader in the U.S. Aggregates Business: Martin Marietta will become
the nation's largest producer of construction aggregates, supplying the
crushed stone, sand and gravel used to build the roads, sidewalks and
foundations on which Americans live. The addition of Texas Industries will
add approximately 800 million tons of aggregates reserves, bringing the
total to over 13.5 billion tons. Texas Industries shipped nearly 15
million tons of sand, gravel and crushed stone during fiscal year 2013.
Texas Industries is a major supplier of aggregates in high-growth markets
such as Texas, and has long-focused on the synergies available from
operating in aggregates as well as cement and ready-mix.
* Increased Scale, Enhanced Growth Exposure and Vertical Integration in
Select Markets: With vertically integrated operations across aggregates
and targeted cement, the combined company is expected to be even more
competitive. Texas Industries increases Martin Marietta's presence in the
Southwest, with state-of-the-art cement production facilities concentrated
primarily in Texas and California – two of the largest and fastest growing
markets for construction materials in the United States. The increased
scale and geographic diversity resulting from this transaction will
provide a broader set of opportunities for organic and inorganic growth.
In addition, select vertical integration will improve distribution and
transportation costs, diversify end-markets and drive other value
enhancing efficiencies. The combined company will also have an outstanding
asset base that can deliver superior product offerings and service to
customers.
* Significant Synergy Opportunities: The transaction is expected to generate
approximately $70 million of annual pre-tax synergies by calendar year
2017, which would correspond to over $500 million total value creation for
shareholders. Key drivers of these synergies include the consolidation of
corporate overhead and duplicate functions, enhanced revenue opportunities
and increased operational efficiencies through the adoption of best
practices and capabilities from each company.
* Incremental Value Creation through Utilization of NOLs and Potential Real
Estate Divestitures: Martin Marietta expects to be able to utilize Texas
Industries' more than $400 million in existing NOLs over the next few
years. In addition, the companies believe that there is an opportunity to
realize incremental value from the expected divestiture of identified
non-operating real estate assets.
* Financial Strength and Flexibility: The transaction is expected to be
immediately accretive to Martin Marietta's earnings per share in 2014,
assuming refinancing of Texas Industries' outstanding debt at or around
the closing of the merger and excluding one-time costs. Martin Marietta
expects that at the closing of the merger the combined company will
maintain its strong existing credit ratings and have pro forma leverage of
less than 3.0 times EBITDA for the 12 months ended December 31, 2014. The
combined company will continue to adhere to Martin Marietta's strict
operational and financial discipline and, with improved access to capital,
will be well-positioned to pursue a wide range of attractive growth
opportunities to continue delivering value to shareholders.
* Strong Balance Sheet with Solid Cash Flows and Meaningful Dividend: The
combined company will maintain a strong balance sheet with significant
cash flow, giving it the ability to pay a meaningful quarterly cash
dividend. The combined company intends to maintain the dividend at Martin
Marietta's current rate of $1.60 per Martin Marietta share annually,
equivalent to $1.12 per Texas Industries share annually, based on the
proposed exchange ratio.
* Enhanced Value for Customers: The size and scale of the combined company
will enable Martin Marietta to provide even more value for customers. With
a collective workforce of approximately 7,000 highly-skilled employees and
a shared commitment to providing exceptional construction materials and
the best service and solutions, the combined company will be even better
equipped to serve its customers and communities.
* Greater Employee Opportunity: This combination creates an even stronger
base of talent by uniting two highly-skilled workforces with a strong
commitment to serving customers and communities. As part of a stronger,
larger company, Martin Marietta and Texas Industries employees will
benefit from greater career and professional development opportunities
created by this transaction.
Management, Board Composition and Headquarters
After the close, the combined company, which will operate under the name
Martin Marietta Materials, Inc., will be headquartered in Raleigh, North
Carolina and will maintain a significant presence in Dallas.
Ward Nye and the rest of the Martin Marietta executive team will lead the
combined company. Top talent across the combined organization will be retained
based on a “best athlete” approach.
An individual jointly selected by Martin Marietta and Texas Industries will be
appointed to the Martin Marietta Board of Directors.
Timeline and Approvals
The companies anticipate closing the transaction in the second quarter of
2014. The transaction is subject to regulatory approvals, including expiration
or termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act and other customary closing conditions. The
transaction is also subject to the approval of Martin Marietta and Texas
Industries shareholders.
Texas Industries' two largest shareholders, representing approximately 51
percent of shares outstanding, have agreed to vote all of their shares (or in
some limited circumstances, about 35 percent of the outstanding shares) of
Texas Industries common stock in favor of the transaction.
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