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 right out with it. “We believe Airgas shareholders today face substantially more uncertain market conditions than when we commenced our offer for Airgas in February,” he said. “The certainty of a fully financed all-cash offer at a substantial premium is more attractive than ever before.”

Author: Alex Tullo

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