Martin Marietta Materials, Inc. v. Vulcan Materials Co.: Court of Chancery Upholds Confidentiality Agreements and Temporarily Enjoins Hostile Bid
May 5, 2012
In Martin Marietta Materials, Inc. v. Vulcan Materials Co., C.A. 7102-CS (Del. Ch. May 4, 2012), the Court of Chancery upheld a pair of confidentiality agreements and temporarily enjoined Martin Marietta Materials from prosecuting a proxy contest and proceeding with a hostile bid for its industry rival Vulcan Materials Company.
For years, Vulcan had expressed interest in a friendly transaction with Martin Marietta. In the spring of 2010, the parties executed two stringent confidentiality agreements to enable their merger and antitrust discussions. Both parties were seeking to avoid being the target of an unsolicited offer by the other or by another buyer when they entered into the confidentiality agreements. Accordingly, the agreements protected from disclosure the companies’ confidential information as well as the fact that the parties had merger discussions.
After its economic position improved relative to Vulcan, Martin Marietta decided to make a hostile bid for Vulcan; it also launched a proxy contest designed to make Vulcan more receptive to its offer. The Court found that Martin Marietta used protected confidential material in making and launching its hostile bid and proxy contest.
The Court then construed the language of the confidentiality agreements to determine that Martin Marietta had breached those agreements by (1) using protected information in formulating a hostile bid, since the information was only to be used in an agreed-to business combination; (2) selectively disclosing protected information in one-sided securities filings related to its hostile bid, when such information was not disclosed in response to a third-party demand and when Martin Marietta failed to comply with the agreements’ notice and consent process; and (3) disclosing protected information in non-SEC communications in an effort to “sell” its hostile bid.
The Court held that, although the confidentiality agreements did not expressly include a standstill provision, Martin Marietta’s breaches entitled Vulcan to specific performance of the agreements and an injunction. The Court therefore enjoined Martin Marietta, for four months, from prosecuting a proxy contest, making an exchange or tender offer, or otherwise taking steps to acquire control of Vulcan’s shares or assets.