On Friday, Delaware Chancery Judge Leo Strine, Jr. issued a 100+ page opinion finding that gravel material supplier Martin Marietta Materials “thoroughly breached” confidentiality agreements with competitor Vulcan Materials during merger negotiations and as a result, its effort at a hostile takeover bid would be prohibited for the next four months. It appears that Martin Marietta used confidential information provided under the agreement to formulate the hostile bid.
The companies are the two largest construction materials suppliers in the United States. I have tried to get the opinion from the Chancery Court’s website but it does not appear to be available yet, so I am relying on the various media reports of this significant opinion.
According to Bloomberg, Martin Marietta sued on Dec. 12, 2011, the same day it made the hostile bid, in a preemptive move to get the court to rule that the offer wasn’t prohibited by a May 2010 confidentiality agreement between the companies. Vulcan countersued, seeking an injunction against the hostile bid. The takeover would have created the world’s largest producer of sand, gravel and crushed stone.
The Wall Street Journal has reported that Judge Strine ruled that allowing Martin Marietta to benefit from nonpublic materials supplied during friendly talks would set an unfair precedent for corporate deal-making overall. “If the cost of sharing information is to be at the mercy of the other party…a typical CEO [would] tend not to risk sharing,” Judge Strine wrote. “Rewarding a breaching party like Martin Marietta would encourage other parties to end-run contractual pre-disclosure procedures,” he added.
Injunctions like this are exceedingly rare and it will be interesting to see what Martin Marietta did to warrant this order. The opinion may prove to be an important one not only in hostile merger transactions but for many potential acquisitions involving smaller companies. Failed acquistions are among the more frequent types of trade secret disputes; given the prominence of the Delaware Chancery Court, this opinion could be an extremely important one in that context.
I will update this post when I am able to retrieve and review the opinion.