Airgas Attacks Air Products Bid On All Fronts
Jul22

Airgas Attacks Air Products Bid On All Fronts

Airgas has rejected Air Products & Chemicals’ offer, version 4.0. I was a little surprised. Analysts have been talking about a potential deal for Airgas happening at about $68 to $70 per share. I thought that Air Products raising its offer from $60.00 to $63.50 might entice Airgas to the negotiating table to screw down the details. Nope. Airgas’ reaction was a full on assault. Using wording now familiar from the rejection of three previous offers, Airgas founder and CEO Peter McCausland, said the deal “grossly undervalues Airgas”. Airgas message to shareholders was, “we do have a backup plan should the Air Products offer be torn asunder”. The company timed the rejection to coincide with its quarterly earnings announcement. In February, Air Products put out its $60-per-share bid a week after Airgas reported dismal earnings for its fiscal third quarter. Since then, Airgas has bounced back. Its fiscal first quarter adjusted net income of $0.83 per share is the second best quarterly performance in company history. Moreover, Airgas raised its fiscal full year guidance from $2.95-$3.05 up to $3.15-$3.30. The company now says it is confident that it can grow earnings to $4.20 for fiscal 2012. McCausland painted Air Products as a Johnny-come-lately. “Airgas-stockholders-not Air products—should reap the benefits of our increased earnings power and bright future,” he said. McCausland also noted that because Airgas has been reducing debt, the $63.50 per share offer is no different than a $62 per share offer in cash and stock that Air products made back in December. Finally, Airgas is throwing some cash back to shareholders by raising its quarterly dividend from $0.22 to $0.25 per quarter. Dividend yield at today’s prices, however, is still only about 1.5%. Airgas was trading at levels of about $45 before the deal was announced. That’s a price Airgas shareholders don’t want to see again now that $63.50 in cash has been on the table. When Hexion sued to get out of its deal with Huntsman in 2008, Huntsman shares immediately lost half of their value, down to about $10. Before Hexion’s $28 per share offer in mid 2007, Huntsman was trading at about $20. There were reasons why Huntsman was so severely punished by shareholders. The Huntsman drama was playing out amid the housing bubble and financial crisis. Hexion filed lengthy documents in the Delaware Court of Chancery talking about a deterioration of Huntsman’s financial condition. Still, Airgas shareholders must know that they will have a huge haircut—and a long wait to recoup their gains--if Air Products walks away. John E. McGlade, Air Product’s CEO, has hinted at this but he hasn’t really been coming...

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Some Thoughts On PEMEX v. BASF
Jun09

Some Thoughts On PEMEX v. BASF

BASF doesn’t steal, it just makes stealing better for criminals. PEMEX’s sentiments, not mine. As you may have heard, Mexico’s national oil company is suing BASF over BASF’s purchases of natural gas condensate pilfered from PEMEX’s natural gas fields in northern Mexico. My first reaction seeing headlines about this was “say what!?” This is a rather serious accusation being leveled at the largest chemical company in the world. The court filing clarifies matters somewhat. For instance, Pemex isn’t accusing BASF of knowingly buying the condensate, which BASF used as a feedstock at a Port Arthur, Texas, cracker. And BASF halted the purchases as soon as it found out. But I still have some questions and observations. How did Trammo Petroleum, which apparently knew that the condensate was stolen, represent the material to BASF? Was BASF suspicious? What questions did BASF ask? What were Trammo’s answers to those questions? How much did BASF pay for the condensate? How do these prices compare with the going rate for condensate and other feedstocks at the time (round about early 2009)? Should these prices have raised red flags? Did BASF test the condensate’s composition? Might that have told BASF where it was from? Usually when one deals with criminals, something just doesn’t feel right. A little spider sense starts to tingle. There are some with the ability to interpret this sense right away. They are called “street smart”. For everyone else, it isn’t until it’s too late—such as when law enforcement gets involved or the national oil company of Mexico sues you—that it becomes clear that something illegal has been afoot. And what about Verbund? This is BASF’s mantra, like Fahrvergnügen is for Volkswagen. Verbund suggests that everything that BASF does is very deliberate and integrated—all of the molecules coming into a BASF plant are nurtured into being the best compounds they can possibly be. This idea doesn’t seem to square of the thought of BASF buying feedstocks off a truck hijacked in Mexico. (A little poetic license needs to be granted here. The condensate from the hijacked trucks was transferred to other trucks to cross the border.) BASF has fairly extensive operations in Mexico, especially around Altamira. It and many other chemical companies have been trying to get more feedstocks out of PEMEX for years. PEMEX, which needs to pay a lofty tax bill to help maintain Mexico’s federal budget, can hardly afford to increase capacity. This is why the country has a massive deficit in chemical trade. Guess how much $300 million in condensate being stolen from PEMEX helps BASF and other chemical makers in Mexico? Answer: Not at all. I...

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