The Fight for Airgas

By Jack Keough

February 15, 2010


Air Products takes its acquisition proposal straight to Airgas' shareholders.

The battle is on for Radnor, PA-based Airgas (NYSE: ARG), one of the largest welding, gas, safety, and industrial supply companies in the country.

Air Products & Chemicals Inc. (NYSE: APD), which was rebuffed last Tuesday in its attempt to purchase Airgas, its smaller rival, for about $5 billion in cash, plus assumption of $1.9 billion of debt says it will now take its fight for Airgas directly to its shareholders. The all-cash offer was for $60 per share. Airgas' board of directors is reviewing the offer and said it intended to advise stockholders of its formal position within 10 business days. The offer is basically the one that Air Products made earlier and Airgas rejected. The board called the initial offer too low and said it should be considered a “bargain basement price.”

Three years ago, Airgas enacted a "poison pill" intended to ward off such hostile takeovers when a bidder acquires more than 15 percent of outstanding common stock. In a prepared statement, Air Products claimed their offer would be in the best interests of Airgas shareholders: “We respect Peter McCausland and greatly admire the company he founded and matured, but we fundamentally disagree with him on achievable standalone value and do not believe his approach is in the best interests of the owners of the other approximately 90% of Airgas shares,” the company said. “We urge the independent directors of Airgas to form a Special Committee that will objectively evaluate our offer and sit down with us to discuss it.

“Airgas’ repeated claim that its shares have outperformed Air Products’ shares is neither accurate nor relevant to Airgas shareholders’ consideration of a $60.00 per share all-cash offer. What is relevant is whether Airgas can create more value on a standalone basis. Airgas contends its recent share price is an anomaly and shareholders will receive value greater than $60.00 per share ‘simply with the passage of time’ - but this is hardly reassuring given that Airgas has provided no new information on its prospects and has just missed its quarterly earnings and lowered financial guidance for fiscal 2010. Even if shareholders believe Airgas can achieve its highly optimistic projections for fiscal 2013/2014, they are clearly better off with the certainty of cash at a 38% premium in the near term."

McCausland, who founded Airgas in 1982, is the company’s chairman and CEO. Since that time, Airgas has grown significantly, primarily though more than 400 acquisitions of small and regional distributors. In its largest transaction of 2009, Airgas acquired Tri-Tech, an independent distributor with 16 locations throughout Georgia, Florida and South Carolina, which generated $31 million in annual revenues. Airgas also improved its presence in Oklahoma and West Texas just a few months ago with its purchase of $10 million Lawton, OK-based Fitch Industrial & Welding Supply.

During an earnings call report with financial analysts last month McCausland indicated that the economy was starting to turn and pointed to a number of plants under construction throughout the country. He said that a recovery seemed underway in most of Airgas’ customer segments. “We were pleased to see a sequential increase in sales to our industrial manufacturing customers. Utilities and petrochemical along with our always-steady medical business posted the strongest sequential growth on a daily sales basis,” he said according to a transcript of the call provided by www.seekingalpha.com.

He noted the company would continue focusing on acquisitions in the highly fragmented market in the U.S. but was also looking “hard” at three opportunities for international expansion.
View all Airgas news at www.mdm.com/airgas.