Martin Marietta Materials, Inc. v. Vulcan Materials Co.

• Decision Date: 12 July 2012
• Docket Number: 2012.,No. 254,254
• Citation: 68 A.3d 1208
• Parties: MARTIN MARIETTA MATERIALS, INC., Plaintiff and Counterclaim–Defendant Below, Appellant, v. VULCAN MATERIALS COMPANY, Defendant and Counterclaim–Plaintiff Below, Appellee.
• Court: Supreme Court of Delaware

68 A.3d 1208

MARTIN MARIETTA MATERIALS, INC., Plaintiff and Counterclaim–Defendant Below, Appellant,

v.VULCAN MATERIALS COMPANY, Defendant and Counterclaim–Plaintiff Below, Appellee.

No. 254, 2012.

Supreme Court of Delaware.

Submitted: May 31, 2012.

Decided: July 10, 2012.

Corrected: July 12, 2012.

Court Below: Court of Chancery of the State of Delaware, C.A. No. 7102.

Upon appeal from the Court of Chancery. AFFIRMED.

Robert S. Saunders, Esquire, of Skadden, Arps, Slate, Meagher and Flom LLP, Wilmington, Delaware; Of Counsel: Robert E. Zimet (argued), James A. Keyte and Susan L. Saltzstein, Esquires, of Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York; Eric J. Gorman, Esquire, of Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, Illinois, for Appellant.

Collins J. Seitz, Jr., David E. Ross and Garrett B. Moritz, Esquires, of Seitz Ross Aronstam & Moritz LLP, Wilmington, Delaware; Of Counsel: Kenneth B. Forrest, Theodore N. Mirvis (argued), George T. Conway III and William Savitt, Esquires, of Wachtell, Lipton, Rosen & Katz, New York, New York, for Appellee.

Before STEELE, Chief Justice, HOLLAND, BERGER, JACOBS and RIDGELY, Justices, constituting the Court en Banc.

JACOBS, Justice:

On May 14, 2012, the Court of Chancery entered a final judgment and order after a trial in this action initially brought by Martin Marietta Materials, Inc. (“Martin”) against Vulcan Materials Company (“Vulcan”). Granting judgment against Martin on Vulcan's counterclaims, the Court of Chancery enjoined Martin, for a four month period, from continuing to prosecute its pending Exchange Offer and Proxy Contest to acquire control of Vulcan. That injunctive relief was granted to remedy Martin's adjudicated violations of two contracts between Martin and Vulcan: a Non–Disclosure Letter Agreement (the “NDA”) and a Common Interest, Joint Defense and Confidentiality Agreement (the “JDA”).¹

Martin appealed to this Court from that judgment. On May 16, 2012, this Court ordered that the case proceed on an expeditedbasis. Following briefing, oral argument was held on May 31, 2012. That same day, after deliberating, the Court entered an Order stating that the judgment would be affirmed for reasons that would be explicated in a formal Opinion to issue in due course. This is the Opinion contemplated by this Court's May 31, 2012 Order.

THE FACTS²

A. Background Leading to the Confidentiality Agreements

Vulcan and Martin are the two largest participants in the United States construction aggregates industry. That industry engages in mining certain commodities and processing them into materials used to build and repair roads, buildings and other infrastructure. Vulcan, a New Jersey corporation headquartered in Birmingham, Alabama, is the country's largest aggregates business; and Martin, a North Carolina corporation headquartered in Raleigh, North Carolina, is the country's second-largest.

Since the early 2000s, Vulcan and Martin episodically discussed the possibility of a business combination, but the discussions were unproductive and no significant progress was made.³ In 2010, Ward Nye, who had served as Martin's Chief Operating Officer since 2006, was appointed Martin's Chief Executive Officer (“CEO”). After that, Nye and Vulcan's CEO, Don James, restarted merger talks.⁴ In early April 2010, Vulcan's investment banker at Goldman Sachs first “test[ed] out” the new Martin CEO's interest. ⁵ Nye's positive response prompted a meeting with James later that month, which led to more formal discussions.

At the outset Nye was receptive to a combination with Vulcan, in part because he believed the timing was to Martin's advantage. Vulcan's relative strength in markets that had been hard hit by the financial crisis, such as Florida and California, had now become a short-term weakness. As a result, Vulcan's financial and stock price performance were unfavorable compared to Martin's, whose business was less concentrated in those beleaguered geographic regions. To Nye, therefore, a timely merger—before a full economic recovery and before Vulcan's financial results and stock price improved—was in Martin's interest. ⁶ Moreover, Nye had only recently been installed as Martin's CEO, whereas James, Vulcan's CEO, was nearing retirement age with no clear successor. To Nye, that suggested that a timely merger would also create an opportunity for him to end up as CEO of the combined companies.⁷

Relatedly, although Nye was willing to discuss a possible merger with his Vulcan counterpart, he was not willing to risk being supplanted as CEO. The risk of Nye being displaced would arise if Martin were put “in play” by a leak of its confidential discussions with Vulcan, followed by a hostile takeover bid by Vulcan or a third party. Nye's concern about a hostile deal was not fanciful: recently Martin had engagedin friendly talks with a European company that had turned hostile. The European company's hostile attempt to acquire Martin failed only because the financial crisis “cratered” the bidder's financing.⁸

Understandably, therefore, when Nye first spoke to Vulcan's banker, Goldman Sachs, in April 2010, he stressed that Martin was not for sale, and that Martin was interested in discussing the prospect of a friendly merger, but not a hostile acquisition of Martin by Vulcan. As the Chancellor found, Nye's notes prepared for a conversion with Vulcan's banker made it clear that “(i) Martin ... would talk and share information about a consensual deal only, and not for purposes of facilitating an unwanted acquisition of Martin ... by Vulcan; and even then only if (ii) absolute confidentiality, even as to the fact of their discussions, was maintained.” ⁹ When James and Nye first met in April 2010, they agreed that their talks must remain completely confidential, and they operated from the “shared premise” that any information exchanged by the companies would be used only to facilitate a friendly deal. ¹⁰

To secure their understanding, Nye and James agreed that their respective companies would enter into confidentiality agreements. That led to the drafting and execution of the two Confidentiality Agreements at issue in this case: the NDA and the JDA.

B. The NDA

Nye related the substance of his conversations with James to Roselyn Bar, Esquire, Martin's General Counsel, and instructed Bar to prepare the NDA. In drafting the NDA, Bar used as a template an earlier agreement between Martin and Vulcan that had facilitated an asset swap transaction. Consistent with Nye's desire for strict confidentiality, Bar proposed changes to the earlier template agreement that were “unidirectional,” i.e., that enlarged the scope of the information subject to its restrictions and limited the permissible uses and disclosures of that covered information.¹¹

In its final form, the NDA prohibited ¹² both the “use” and the “disclosure” of “Evaluation Material,” except where expressly allowed. Paragraph 2 permitted either party to use the other party's Evaluation Material, but “ solely for the purpose of evaluating a Transaction.” ¹³ Paragraph 2 also categorically prohibited either party from disclosing Evaluation Material to anyone except the receiving party's representatives. The NDA defined “Evaluation Material” as “any nonpublic information furnished or communicated by the disclosing party” as well as “all analyses, compilations, forecasts, studies, reports, interpretations, financial statements, summaries, notes, data, records or other documents and materials prepared by the receiving party ... that contain, reflect, are based upon or are generated from any such nonpublic information....” ¹⁴ The NDA defined “Transaction”as “a possible business combination transaction ... between [Martin] and [Vulcan] or one of their respective subsidiaries.” ¹⁵

Paragraph 3 of the NDA also prohibited the disclosure of the merger negotiations between Martin and Vulcan, and certain other related information, except for disclosures that were “legally required.” Paragraph 3 relevantly provided that:

Subject to paragraph (4), each party agrees that, without the prior written consent of the other party, it ... will not disclose to any other person, other than as legally required, the fact that any Evaluation Material has been made available hereunder, that discussions or negotiations have or are taking place concerning a Transaction or any of the terms, conditions or other facts with respect thereto (including the status thereof or that this letter agreement exists).¹⁶

Paragraph 4 defined specific conditions under which “legally required” disclosure of Evaluation Material (and certain other information covered by Paragraph 3) would be permitted:

In the event that a party ... [is] requested or required (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any of the other party's Evaluation Material or any of the facts, the disclosure of which is prohibited under paragraph (3) of this letter agreement, the party requested or required to make the disclosure shall provide the other party with prompt notice of any such request or requirement so that the other party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this letter agreement. If, in the absence of ... the receipt of a waiver by such other party, the party requested or required to make the disclosure ... should nonetheless, in the opinion of such party's ... counsel be legally required to make the disclosure, such party ... may, without liability hereunder, disclose only that portion of the other party's Evaluation Material which such counsel advises is legally required to be disclosed....

As the Chancellor found, “Paragraph (4) establishes the Notice and Vetting Process for disclosing Evaluation Material and Transaction Information that would otherwise be confidential under the NDA in...