Wednesday, December 5, 2012

Martin Marietta and the Pac Man Defense

Martin Marietta is making acquisition news again, most recently as Martin Marietta Materials.  They were involved in merger discussions with rival gravel and sand supplier Vulcan Materials but talks ended when Martin launched a 'hostile bid' for Vulcan.  Vulcan argued successfully in the Delaware courts that Martin Marietta had unfairly used information it learned in the merger discussions.         Now, according to an article in the Wall Street Journal reported in Reuters, Martin is ready to resume the friendly discussions.  One wonders how friendly they will be.  Certainly with an improved outlook for the construction industry and a successful defense of the hostile offer, Vulcan is now in a strengthened bargaining position.

Ironically, Martin Marietta has been involved in another interesting acquisitions - as a target.  I am referring to their novel defense of an attack by rival Bendix back in 1982.   When Bendix started acquiring shares, MM avowed to stay independent.  Their defense, termed the Pac-Man defense after the popular game at the time,  was to launch an attack against the bidder - going after shares in Bendix.   Thus, the hunted becomes the hunter.  Allied Signal and United Technologies both entered the bidding as allies to MM and Bendix.  At the end of the contest, Bendix held 67% of Martin Marietta, while Martin Marietta held 50% of Bendix!  By the end, Allied had acquired all of Bendix's stock and MM remained free - although with a much higher debt burden.  Shareholders of the targets earned about 38% while Allied's shareholders lost 8.6%. (These and other details are contained in a paper by Michael Jensen, entitled Takeovers: Folklore and Science  The figures for Bendix and Allied are been typical for target returns but the losses for Allied that are much larger than those for bidders.

Martin Marietta ultimately merged with Lockheed in 1995 to become Lockheed Martin.  Martin Marietta Materials was spun off in 1996.

All the best,


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