Air Products Bids For Airgas

Air Products & Chemicals has unveiled a $60-per-share unsolicited cash offer for Airgas, the largest packaged gas supplier in the U.S. The proposal values Airgas at $7 billion—$5.1 billion for Airgas' shares and another $1.9 billion in debt that Air Products would assume.

Airgas says it will review the offer with its financial and legal advisors. However, Airgas rebuffed two previously undisclosed proposals—an all-stock offer in October worth $60-per-share and a December bid of $62-per-share in stock and cash—saying they "grossly undervalued" Airgas.

Air Products says the deal is an attractive one for Airgas shareholders, representing a 38% premium over the firm's share price on the eve of the bid and an 18% premium over its 52-week high. In fact, Air Products has filed a complaint with the Delaware Court of Chancery arguing that Airgas and its CEO, Peter McCausland, neglected their fiduciary duties to shareholders by refusing to negotiate.

Air Products had sales in its most recent fiscal year of $8.2 billion. Airgas generated revenues of $3.9 billion in 2009. Should a deal be completed, Air Products would become the largest industrial gas company in North America.

Airgas is the largest distributor of packaged gases in the U.S., commanding about a quarter of the market, according to Jefferies stock analyst Laurence Alexander. In the packaged gas business, canisters of gases such as helium, oxygen, carbon dioxide, and argon are delivered to welders, medical facilities, restaurants, food manufacturers, and the like.

Air Products was a minor player in the packaged gas market until 2002, when it sold its business to Airgas for $270 million. When asked at an employee meeting why Air Products would seek to reenter a business that it had exited, CEO John McGlade noted that the business Air Products sold was a small regional player that didn’t have nearly the market density that Airgas does. Air Products still runs a packaged gases business in Europe.

Air Products believes that a combination with Airgas will capture some $250 million in annual synergies. It contends that the combined company would expand at annual rates of 1% to 2% greater than either of the two firms could on their own.