In order to meet the rising demand for industrial gases in Tennessee, Airgas, Inc. (ARG) has signed a long-term contract to supply nitrogen and other gases to Hemlock Semiconductor, LLC by building an air separation unit (ASU) facility. However, Airgas did not disclose the financial terms of the deal.
Hemlock Semiconductor, which is largely owned by Dow Corning Corporation, is a dominant provider of polycrystalline silicon used in manufacturing semiconductors and solar cells.
According to the contract, Airgas will build the ASU facility of $1.2 billion on the land owned by Hemlock Semiconductor and will thus provide nitrogen to help in the formation of silicon for semiconductors and solar cells. Airgas expects to complete the ASU facility by 2012.
Additionally, Airgas will supply nitrogen and other atmospheric gases for Hemlock Semiconductor and the merchant market in the region.
Besides, Airgas is also in talks for the buyout offer from Air Products and Chemicals Inc. (APD). Since October 2009, Air Products has been trying to acquire Airgas and has increased the offer price three times to the current level of $65.50 per share to win over Airgas shareholders. But the Airgas board again rejected the revised offer, citing that the new offer still undervalues the company.
Airgas has been providing industrial, specialty and medical gases through its 16 ASUs nationwide and is one of the largest distributors of safety products; and the producer of nitrous oxide and dry ice in the U.S. These ASU units operate under the company’s Airgas Merchant Gases business unit, which operates Airgas’ network of air separation plants in addition to distribution of atmospheric gases.
We believe that Airgas’s new ASU facility in Tennessee will be beneficial to the growing needs of Airgas merchant gas business and help Hemlock Semiconductor to make silicon for the solar industry.
The quantitative Zacks #3 Rank (short-term Hold rating) on Airgas indicates no clear directional pressure on the shares over the near term.
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