Buyout Targets Plead Their Case

The management of two companies targeted by hostile takeover bids, fertilizer maker PotashCorp and industrial gas supplier Airgas, last week outlined to shareholders the case for biding their time until better offers come along.

Both companies laid out similar arguments. They say the hostile bids—$130.00 per share from BHP Billiton for PotashCorp and $63.50 per share from Air Products & Chemicals for Airgas—attempt to snatch successful companies at rock-bottom prices. Shares of both target firms are trading well above these prices, a sign that shareholders are already seeking more money than the current offers.

In rejecting BHP’s $40 billion hostile bid, PotashCorp says it is uniquely positioned with fertilizer investments in key locations such as Saskatchewan, China, Chile, Jordan, and Israel in a business with great growth potential and a high barrier to entry. The company called BHP’s offer an attempt to transfer the huge upside potential of PotashCorp to its own shareholders at the expense of PotashCorp shareholders.

PotashCorp also disclosed that it is talking with other possible suitors. “PotashCorp has been approached by, and has initiated contact with, a number of third parties who have expressed an interest in considering alternative transactions,” the company said in a statement. Names that have surfaced in media reports include the mining companies Rio Tinto and Vale, as well as Chinese firms.

Meanwhile, Air Products’ offer, up from $60.00 per share originally, has gained some traction. Airgas shareholders tendered 23.2% of the firm’s shares as of Aug. 4. Airgas’ annual meeting on Sept. 15 promises to be a showdown, with Air Products proposing three nominees for Airgas’ board and a revision to Airgas’ bylaws to push up the date of its next meeting, slated to take place toward the end of 2011.

Airgas is portraying Air Products as cynically trying to buy the company on the cheap. “Ask yourself,” the Airgas board wrote in a letter to shareholders. “If you increase Air Products’ bargaining leverage by electing its nominees and accelerating the meeting to January, do you think that will encourage Air Products to pay you the price you deserve for your shares?”

Like PotashCorp, Airgas is willing to be acquired at some price. “If Air Products wants to deliver a ‘message’ to our board, it should do it the ‘old fashioned way’ by offering you an appropriate price,” the company also said in the letter.

Despite a flurry of merger and acquisition activity in the chemical industry, Chris Cerimele, head of chemicals at the investment banking firm Houlihan Lokey, doesn’t expect a rash of hostile takeover attempts.

Airgas and Air Products have been wrangling for more than eight months, he notes. The bid for PotashCorp is about the fertilizer industry, which last year saw the soap opera of Agrium trying to buy CF Industries while CF was trying to buy Terra Industries. “In fertilizers, hostile activity is nothing new,” Cerimele says.