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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
(Amendment No. 2)
SOLICITATION/RECOMMENDATION STATEMENT
Pursuant to Section 14(d)(4)
of the Securities Exchange Act of 1934
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CALMAT CO.
(Name of Subject Company)
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CALMAT CO.
(Name of Person(s) Filing Statement)
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Common Stock, par value $1.00 per share
(including the associated Common Share
Purchase Rights)
(Title of Class of Securities)
131271 10 8
(CUSIP Number of Class of Securities)
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Paul Stanford
General Counsel and Secretary
3200 San Fernando Road
Los Angeles, CA 90065
(323) 258-2777
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
With a copy to:
Robert A Kindler, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
(212) 474-1000
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INTRODUCTION
The Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") originally filed on November 20, 1998, by CalMat Co., a
Delaware corporation (the "Company"), relates to an offer by ALB
Acquisition Corporation, a Delaware corporation (the "Purchaser") and a
wholly owned subsidiary of Vulcan Materials Company, a New Jersey
corporation ("Parent"), to purchase all of the shares of the common stock,
par value $1.00 per share (including the associated common share purchase
rights), of the Company. All capitalized terms used herein without
definition have the respective meanings set forth in the Schedule 14D-9.
Item 3. Identity and Background
The response to Item 3 is hereby amended by adding the following
after the last paragraph of Item 3(b)(2):
"On September 22, 1998, the Company's Board of Directors approved
stock option grants to purchase Shares for managing executives and key
managers of the Company, totaling 490,200 options at an exercise price of
$17-3/16 per Share. The following option grants were approved for the
Senior Officers of the Company:
A. Frederick Gerstell 100,000
George H. Gilmore, Jr. 60,000
Scott J Wilcott 28,000
H. James Gallagher 28,000
Paul Stanford 28,000
Edward J. Kelly 28,000
The options approved on September 22, 1998 will become vested
and exercisable in connection with the Merger, and will be purchased for a
cash payment equal to the product of (i) the number of Shares subject to
the option and (ii) the difference between the Merger consideration and
$17-3/16, the per Share exercise price of the option."
Item 4. The Solicitation or Recommendation
The response to Item 4(b)(1) is hereby amended by adding the
following after the second paragraph thereof:
"During the course of discussions in early October 1998
representatives of Parent informed management of the Company that Parent
would not agree to a stock-for-stock based acquisition transaction, as it
would be too dilutive to Parent's shareholders."
The response to Item 4(b)(1) is hereby further amended by adding
the following after the second sentence of the third paragraph thereof:
"In early October 1998 after several meetings between management
of the Company and the Parent, Mr. James informed Mr. Gerstell that Parent
would be willing to pay $23 to $24 per Share for the Company. Mr. Gerstell
rejected this offer and following several meetings and discussions between
representatives of Parent and the Company, Mr. James informed Mr. Gerstell
that Parent could pay $28 to $29 per Share for the Company. Mr. Gerstell
informed Mr. James that such a price was not acceptable to the Company."
The response to Item 4(b)(2) is hereby amended by adding the
following at the end of the fourth paragraph thereof:
"Relative Advantages and Disadvantages of Remaining Independent.
The primary advantages to the shareholders of the Company remaining
independent are that they would enjoy the exclusive benefit from any
continued efficiencies achieved in the Company's operations as well as from
the proceeds realized from the sale of real estate assets which are not
integral to the Company's operations. The primary disadvantages in the
Company remaining independent consist of the risk that (i) the Company
would not be able to realize any substantial additional cost savings
causing it to suffer from the competitive price disadvantages, (ii) the
Company's planned disposition of real estate assets would be unable to
achieve their projected results thereby depriving the Company of capital
needed to invest in operations and (iii) a dependence on an increasingly
competitive southern California market for the profitability of the
Company's operations."
The response to Item 4 is hereby amended by adding the following
after the last paragraph thereof:
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"(b)(3) Projections.
Prior to entering into the Merger Agreement, Parent conducted a
due diligence review of the Company and in connection with such review,
received certain non-public information from the Company. The non-public
information included certain projections as of October 27, 1998 of future
operating performance (the "Company Projections"). The Company Projections
were specifically prepared for Parent in order to form the basis for
negotiating a possible sale of the Company. The Company Projections were
not prepared in the manner that the Company ordinarily prepares its annual
budget; they did not have all the input from the managers of the Company's
operating units or the field-testing that would typically be obtained in
the process of preparing the Company's budget. The Company Projections were
not prepared with a view to public disclosure or compliance with published
guidelines of the Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections, and are
included in this Schedule 14D-9 only because they were provided to Parent.
None of Parent, the Purchaser or the Company assumes any responsibility for
the accuracy of the Company Projections. While presented with numerical
specificity, the Company Projections were prepared by the Company's
management based upon a variety of assumptions relating to the business of
the Company and are subject to significant uncertainties and contingencies,
many of which are beyond the control of the Company. Furthermore, the
Company Projections were not adjusted by management for various risks
identified by the Company's senior management, including, but not limited
to, (i) risks relating to ongoing operations, such as the possibility of
failing to realize projected gains from the Company's profit improvement
program and the potential of reaching demand capacity constraints in the
southern California market, (ii) risks and capital costs associated with
replacing reserves in certain key locations where reserves are being
depleted, (iii) competitive risks relating to the increasing vertical
integration of competitors in the Company's key markets and to the
aggressive expansion by existing lower cost competitors of the Company,
(iv) risks that the Company will not be able to consummate the real estate
sales included in the Company Projections within the time periods and at
the prices included in the Company Projections, (v) risks relating to
redeploying capital realized from the sale of real estate assets to
investments with a favorable rate of return and (vi) risks associated with
certain significant contingent liabilities. In addition, demand for the
Company's products may be significantly less than the level forecasted in
the Company Projections (which forecasts were well above the F. W. Dodge
forecasts, which are utilized by many companies in the industry). For the
reasons stated above and because the estimates and assumptions underlying
the projections are inherently subject to significant economic and
competitive uncertainties and contingencies, which are difficult or
impossible to predict accurately and are beyond the control of the Company
and/or Parent and/or the Purchaser, there is a substantial risk that the
amounts reflected in the Company Projections for years after 1998 will not
be realized.
The Company Projections set forth earnings per Share (including
gains on the sale of real estate, the gain on, and increases in operating
earnings from, the assets swapped in the proposed transaction with Hanson
PLC and certain other strategic initiatives) of $2.07, $4.56, $3.54 and
$3.53 for fiscal years 1998 through 2001, respectively. Earnings per Share
from continuing operations (which excludes gains on the sale of real
estate, the gain on, and increases in operating earnings from, the assets
swapped in the proposed transaction with Hanson PLC and certain other
strategic initiatives) set forth in the Company Projections were $1.07,
$1.90, $2.75 and $2.91 for fiscal years 1998 through 2001, respectively.
Based on the Company's results of operations for 1998 to date, management
of the Company currently expects that earnings per Share will be
significantly lower than the $2.07 per Share included in the Company
Projections for 1998 due to delays in the sale of certain real estate
assets; however, earnings per Share from continuing operations for 1998 are
currently expected to significantly exceed the $1.07 per Share included in
the Company Projections.
Report of Credit Suisse First Boston to the Board
On November 11, 1998, Credit Suisse First Boston made a
presentation to the Board in connection with the delivery of its opinion as
to the fairness from a financial point of view of the $31.00 per Share
consideration payable to holders of Shares in the Offer and the Merger. See
Annex B to the Schedule 14D-9 for full text of the Credit Suisse First
Boston Opinion, which sets forth the procedures followed, assumptions and
qualifications made, matters considered and limitations on the review
undertaken by Credit Suisse First Boston.
The Credit Suisse First Boston Opinion was provided to the Board
for its information in connection with its consideration of the Offer and
the Merger and does not constitute a recommendation to any stockholder of
the Company as to whether such stockholder should tender shares pursuant to
the Offer or how such stockholder should vote with respect to the Merger.
The summary of the Credit Suisse First Boston Opinion set forth herein is
qualified in its entirety by reference to the full text of the Credit
Suisse First Boston Opinion set forth as Annex B to the Schedule 14D-9 and
is incorporated herein by reference.
In preparing the Credit Suisse First Boston Opinion, Credit
Suisse First Boston performed a variety of financial and comparative
analyses, including those described below. The summary of Credit Suisse
First Boston's analyses set forth below does not purport to be a complete
description of the analyses underlying the Credit Suisse First Boston
Opinion or the presentation made by Credit Suisse First Boston to the
Board.
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The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Credit Suisse First Boston did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Credit Suisse First Boston believes that its analyses must be
considered as a whole and that selecting portions of its analyses, without
considering all analyses, would create an incomplete view of the process
underlying the Credit Suisse First Boston Opinion.
In performing its analyses, Credit Suisse First Boston made
numerous assumptions with respect to the Company, industry performance,
general business, economic, market and financial conditions and other
matters, many of which are beyond the control of the Company. No company,
transaction or business used in such analyses as a comparison is identical
to the Company or the proposed Offer and the Merger, nor is an evaluation
of the results of such analyses entirely mathematical; rather, such
analyses involve complex considerations and other factors that could affect
the acquisition, public trading or other values of the companies, business
segments or transactions being analyzed. Any estimates contained in the
analyses performed by Credit Suisse First Boston are not necessarily
indicative of actual values or future results, which may be significantly
more or less favorable than suggested by such analyses. Additionally,
estimates of the value of businesses or securities do not purport to be
appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. In addition, the Credit
Suisse First Boston Opinion and Credit Suisse First Boston's presentation
to the Board were among several factors taken into consideration by the
Board in making its determination to approve the Offer and the Merger
Agreement. Consequently, the Credit Suisse First Boston analyses described
below should not be viewed as, and were not, determinative of the opinion
of the Board or the Company's management with respect to the Offer and the
Merger Agreement.
In arriving at its opinion, Credit Suisse First Boston reviewed
certain publicly available business and financial information relating to
the Company, as well as the Merger Agreement. Credit Suisse First Boston
also reviewed certain other information, including financial forecasts,
provided to it by the Company, and met with the management of the Company
to discuss the business and prospects of the Company. Credit Suisse First
Boston also considered certain financial and stock market data of the
Company, compared that data with similar data for other publicly held
companies in businesses similar to those of the Company and considered the
financial terms of certain other business combinations and other
transactions which have recently been effected. In addition, Credit Suisse
First Boston considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria that it
deemed relevant.
In connection with its review, Credit Suisse First Boston did not
assume any responsibility for independent verification of any of the
foregoing information and relied on such information being complete and
accurate in all material respects. With respect to financial forecasts,
Credit Suisse First Boston assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and judgments of
the management of the Company as to the future financial performance of the
Company. Credit Suisse First Boston was not requested to make, and did not
make, an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor was it furnished with any
such evaluations or appraisals. Credit Suisse First Boston was not
requested to, and did not, solicit third party indications of interest in
acquiring all or any part of the Company. No other limitations were imposed
by the Credit Suisse First Boston Opinion. The Credit Suisse First Boston
Opinion is necessarily based upon financial, economic, market, exchange
rate and other conditions as they existed and could be evaluated on the
date thereof.
Credit Suisse First Boston set forth several different valuation
analyses in its presentation to the Board. In connection with Credit Suisse
First Boston's preparation of such valuation analyses, management provided
Credit Suisse First Boston updated forecasts that reflected some
preliminary input from field managers received as part of the Company's
typical budgeting process and these forecasts as of November 11, 1998
showed earnings per Share from continuing operations of approximately
$1.60, $2.40 and $2.55 for 1999 through 2001, respectively. Using the
results of these analyses, as described below, Credit Suisse First Boston
determined that the appropriate enterprise value range of the Company's
ongoing operations was $700 million to $830 million. Credit Suisse First
Boston then (i) added to this range, the after tax net present value of
management's estimation of the value of the proceeds of the Company's real
estate divestiture program and (ii) subtracted from this range, the net
debt and other liabilities of the Company. This calculation resulted in a
total equity value of the Company ranging from approximately $652 million
to $792 million, or approximately $27.00 to $32.00 per Share. The following
is a summary of the analyses used to determine the enterprise value of the
Company's ongoing operations as set forth in the presentation made by
Credit Suisse First Boston to the Board.
Comparable Companies Analysis. Using publicly available
information, Credit Suisse First Boston compared selected financial,
operating and stock market data for the Company to corresponding data of
selected companies in the construction materials industry, consisting of
Parent, Martin Marietta Materials, Inc., Florida Rock, Lafarge and Texas
Industries. Credit Suisse First Boston determined that the Shares were
likely to trade in line with Parent and Martin Marietta Materials, Inc.
Credit Suisse First Boston's reasoning was based upon, among other things,
the fact that although the Company is in higher growth markets, the
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price of the Shares is likely to be adversely affected by the Company's
smaller size, geographic concentration and lower margins. The Comparable
Company Analysis indicated, among other things, ranges of multiples for
Parent and Martin Marietta Materials, Inc. of estimated fiscal 1999
earnings per share of 17.1x to 17.6x, as compared to 17.4x for the Company.
Based on this analysis, Credit Suisse First Boston determined that the
Shares were appropriately valued by the public markets.
Precedent Transactions Analysis. Using publicly available
information, Credit Suisse First Boston analyzed the purchase prices and
implied transaction multiples paid in the following selected transactions
in the construction materials industry (acquiror/target): Hanson PLC/Alfred
McAlpine, Inc. Martin Marietta Materials, Inc./Redland Stone Products
Company, RMC Group PLC/Wulfrather Zement GmbH & Co. KG, Lafarge
Corporation/Redland, Inc. Southdown, Inc./Medusa Corporation, Hanson PLC/
H.G. Fenton Materials Company, Lafarge S.A./Cementos Molins, S.A., Lafarge
S.A./Redland PLC, Bardon Group PLC/CAMAS PLC, Martin Marietta Materials,
Inc./American Aggregates Corporation and CRH plc/ Tilcon Inc.
(collectively, the "Precedent Transactions"). All multiples were based on
information publicly available at the time of such transaction. Based upon
this analysis, Credit Suisse First Boston determined an appropriate range
of multiples of latest twelve months earnings before interest, taxes,
depreciation and amortization ("EBITDA") of 7.5x to 9.5x in connection with
the proposed transaction. Credit Suisse First Boston then calculated an
imputed enterprise value range for the Company's ongoing operations by
applying this range of multiples to the EBITDA of Company for the twelve
months ended September 30, 1998, which indicated an imputed enterprise
value range of approximately $560 million to $710 million.
Discounted Cash Flow Analysis. Credit Suisse First Boston
performed a discounted cash flow analysis for fiscal years 1998 to 2008 to
estimate the present value of the unlevered free cash flows that the
Company's ongoing operations would generate if the Company were to achieve
management's forecasts.
The 10-year forecast used in Credit Suisse First Boston's
discounted cash flow analysis was prepared using the management's forecast
as of November 11, 1998 for years 1999-2001 and management's estimates of
future trends regarding expected growth rates and margins for years 2002 to
2008 (the "Base Case").
Credit Suisse First Boston calculated terminal values for the
Company by applying a range of multiples of EBITDA to the estimated fiscal
year 2008 EBITDA from 7.0x to 8.0x. These EBITDA multiples were selected
based on the average of EBITDA multiples represented by the prices paid in
selected disclosed acquisitions of construction materials companies from
1992 to 1998. The free cash flow streams and terminal values were then
discounted using a range of discount rates from 10.0% to 11.0%. The
discount rate range was selected based on an analysis of the weighted
average costs of capital of the Company and its peer companies. Based on
this analysis, the implied enterprise value of the Company's ongoing
operations ranged from $715 million to $830 million.
Credit Suisse First Boston also analyzed what impact changes in
the future business cycle of the economy would have on the discounted cash
flow valuation of the Company's ongoing operations. The Base Case assumed
that the peak year of the current business cycle was 2001 and that the
midpoint of the next business cycle would be 2003. Credit Suisse First
Boston then analyzed the impact on the Base Case projections (i) by
assuming that the peak year of the current business cycle would be 2000 and
the midpoint of the next cycle would be 2003 ("Scenario A") and (ii) by
assuming that the peak year of the current business cycle would be 2000 and
the midpoint of the next cycle would be 2005 ("Scenario B"). Credit Suisse
First Boston calculated implied maximum equity values per Share for the
Company of approximately $31.44 for Scenario A and $28.85 for Scenario B."
Item 8. Additional Information to be Furnished
The response to Item 8 is hereby amended by adding the following
after the last paragraph thereof:
On December 15, 1998, Parent and the Company entered into a
memorandum of understanding (the "Memorandum") with regard to the
Complaints, the Green Complaint and the Livingstone Complaint
(collectively, the "Lawsuits"). Pursuant to the Memorandum, (i) defendants
have agreed to make the additional disclosures contained in this Amendment
No. 2 to the Schedule 14D-9, (ii) counsel for the plaintiff class in the
Lawsuits have agreed not to further pursue an order enjoining consummation
of the Offer and the Merger and (iii) the Company, Parent and the plaintiff
class have agreed to enter into a stipulation of settlement of the
Lawsuits. Any such stipulation of settlement and the payment of any fees
for counsel for the plaintiff class are subject to the approval of the
Court of Chancery in Delaware.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
CALMAT CO.
By /s/ PAUL STANFORD
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Name: Paul Stanford
Title: Executive Vice President,
General Counsel and
Secretary
Dated as of December 15, 1998
