Debt forces Martin Marietta to put some groups on block
Martin Marietta Corporation is now learning the cost of independence. The scrappy Bethesda, Md., firm, which successfully fended off a takeover attempt by William Agee and Bendix Corporation, is in the process of trying to unload some of its divisions to obtain cash to reduce the mammoth debt load incurred as a result of the battle.
The company indicated in a recent prospectus that it would sell ''certain major assets,'' excluding only its aerospace business. Thus the company could unload its cement, aluminum, aggregates (such as gravel for the construction business), or specialty chemical divisions. Altogether these divisions represented $1.17 billion in sales, or 35 percent of Martin Marietta's 1981 sales.
So far there have been no buyers for any of the divisions, although the company does note that there have been ''expressions of interest.'' According to Roy Calvin, a company spokesman, Martin Marietta is not having a ''fire sale.'' However, one source at an aluminum company called Martin Marietta's actions ''a going-out-of-business sale.''
In its battle with Bendix, the company borrowed approximately $900 million in order to purchase 50.3 percent of Bendix. The Bendix shares were ultimately swapped with Allied Corporation for its own shares when Allied acquired Bendix. Allied kept a 39 percent interest in Marietta, and agreed not to try to take over Martin Marietta for at least 10 years.
However, the debt incurred in the exchange has severely stretched the company balance sheet. Prior to a recent preferred-stock offering, the debt-to-total-capital ratio was 82 percent. The preferred offering, raising $87. 3 million, changed that somewhat. Interest payments for the company have swelled from $3.6 million for the first nine months of 1981 to $38.9 million for the first nine months of 1982. For this year it will be much greater, since most of the borrowing occurred at the end of the year. Because of the recession and the higher interest cost, earnings have tumbled. The company estimates it will only break even when it reports its 1982 fourth-quarter earnings.
Industry sources indicate Martin Marietta is putting much of its effort into selling its cement division, which had sales of $200 million last year, and its aluminum division, which had sales of $522 million. So far, industry sources indicate, the company has shown the cement facilities to the Blue Circle Group, a British cement company, and the Holderbank Group, a Swiss holding company. Mr. Calvin added that interest was also expressed by a German company, which industry sources said was possibly Dyckerhoff Zement.
The Blue Circle Group, reached in London, said it had looked at the Martin Marietta facilities but was not interested in buying them. ''We think they were asking too much money for what they are offering,'' a spokesman told the Monitor.
A Holderbank official in Zurich confirmed that Holderbank had also been in discussions with Martin Marietta, but they had been broken off. The official told the Monitor: ''When Martin Marietta first entered the talks, their expectations were too high. Later they came down, but they were still too high. Those plants need substantial capital investment, and this cost must be figured in the purchase price.'' The official did not rule out the possibility that the talks might resume.
In order to make the cement division more appealing, Martin Marietta has announced plans to sell or close down by March two unprofitable cement plants - one located in Thomaston, Maine, and the second in Northampton, Pa. In making the announcement concerning the Northampton plant, Martin Marietta said a potential buyer, Riverton Corporation of Front Royal, Va., had made a conditional offer to purchase the plant. Industry sources indicate, however, that this is an old plant with only a marginal value. One industry source estimated that it would probably cost the company $4 million to $6 million to close down each plant.
One source familiar with the facilities estimated the Martin Marietta cement division, not including the two plants to be sold or closed, might be worth about $250 million. In an interview with the Washington Post, company president Thomas G. Pownall said he was expecting about $300 million.
One problem with selling the division is the poor economy. One source familiar with the cement division said it currently is operating at 70 percent of capacity. Some of the plants are poorly located. For example, a brand new cement plant in Utah, built at a cost of $80 million, is over 100 miles from its nearest market, Salt Lake City. This plant is reportedly operating at only 25 percent of capacity.
However, some of the other cement plants are well designed and well located. Thus, another industry source said he felt the Martin Marietta cement plants could be a ''very handy acquisition'' for either a foreign buyer or someone not already in the cement business. The total company tonnage, not including the plants to be sold or closed, amounts to 4.7 million tons, which would make Martin Marietta the fifth-largest company in the cement business.
Martin Marietta's aluminum business is also for sale, Mr. Calvin indicated, adding that the firm has had some inquiries from Japanese companies. In fact, the company was expected to announce the sale of a small portion of the aluminum business on Jan. 5. One source in the aluminum industry said the depressed state of the industry made selling any facilities difficult. ''Marietta's contacting almost everyone,'' he said, but ''no one has any money.'' Last year, the aluminum division earned $27.4 million, but this year both the cement and aluminum divisions are in the red, sources indicate.
Although Martin Marietta indicated in its prospectus that it would sell all but its aerospace divisions if buyers could be found for them, Mr. Calvin said he doubted that the company would dispose of its chemicals and aggregates divisions. Together they had sales of $447 million last year.
Allied Corporation, which now owns 39 percent of Martin Marietta, said it supported the actions to strengthen the balance sheet.