Air Products bids for Airgas

By JEFFREY MCCRACKEN


Industrial-gas company Air Products & Chemicals Inc. made an unsolicited offer to acquire smaller rival Airgas Inc. for about $5.1 billion in cash late Thursday.

In a letter to Airgas's chief executive and board, Air Products offered to pay Airgas shareholders $60 a share in cash, a nearly 38% premium to Airgas shares' closing price Thursday of $43.53. The large premium is intended to ward off rival bids.

Air Products could launch a tender offer directly to shareholders in the coming weeks if the Airgas board does not reach a merger agreement, said people familiar with the matter. An Airgas spokeswoman declined to comment. A merger would create the largest industrial-gas maker in North America by revenue. Allentown, Pa.-based Air Products has annual sales of around $8.3 billion, selling gasses such as argon, hydrogen, and oxygen for industrial and manufacturing uses. It employs 18,900 workers and has a market capitalization about $16 billion

Airgas, based in Radnor, Pa., is in a different market segment—working with retailers who deliver propane to hardware stores and oxygen to hospitals. It employs 14,000, and has a market capitalization around $3.6 billion on sales of about $3.8 billion. Hoping to add this smaller, retail client base, Air Products has been pursuing Airgas for several months.

The chief executives of both companies met in mid-October. At that time, Air Products Chief Executive John McGlade proposed buying the company for $60 a share in stock, according to people familiar with the matter. Air Products also agreed to assume roughly $1.9 billion in Airgas debt.

Airgas Chief Executive Peter McCausland and his board turned down that offer and rejected a subsequent half cash, half stock bid in December. That second offer valued the company at $62 a share plus the assumption of debt, said these people. Its board unanimously rejected both offers, believing they undervalued the faster-growing company, said another person familiar with the talks.

Mr. McCausland, 59 years old, founded the company in the early 1980s. He owns about 9.5% of its shares, which dipped last week after the company posted weak fiscal third-quarter earnings. The latest proposal, which is expected to be made public on Friday, is fully financed by J.P. Morgan Chase & Co. The bank is serving as merger adviser on the transaction along with law firm Cravath, Swaine & Moore. Goldman Sachs Group, Bank of America Merrill Lynch and law firm Wachtell, Lipton, Rosen & Katz are advising Airgas
Like any such offer, Air Products's bid could draw out other suitors, which might include France's Air Liquide SA or Germany's Linde AG.

Air Products estimates that combining the two gas suppliers would produce some $250 million in annual savings. In its letter to Airgas, it expressed a willingness to sell assets to clear regulatory hurdles and to raise its offer if Airgas can demonstrate what it called any other "incremental value."