Airgas, Inc. (ARG) responded to the long-expected move by rival Air Products & Chemicals, Inc. (APD) — the next phase of the Air Products’ hostile takeover attempt, a proxy fight in which it will seek to gain seats on Airgas’ board.
Air Products has proposed three nominees for Airgas’ board and also put forth three stockholder proposals to be considered for approval at Airgas’ 2010 Annual Meeting of Stockholders. The proposals include shifting Airgas’s future board meetings to January (starting from 2011), limiting Airgas’ ability to reappoint directors who have lost re-election, and repealing by law amendments adopted after April 7, 2010.
Airgas retaliated that Air Products’ proposals were not in the best interest of the company and its shareholders. Airgas, following a comprehensive review with its financial and legal advisors, rejected the offer. Airgas, however, added it will evaluate Air Products’ candidates and proposals in due course.
Airgas has been a target for Air Products since last year. In October 2009, Air Products had made an all-stock proposal offer at an implied value of $60 per share. After getting rejected, Air Products upped its offer to a cash and stock proposal with an implied value of $62 per share.
On February 5, 2010, Air Products came up with an unsolicited offer of $60 per share in cash. At $60 per share, the offer provides a 38% premium to Airgas shareholders based on a closing price of $43.53 as of February 4, 2010 and is 18% above Airgas’ 52-week high. The total value of the transaction is approximately $7 billion, including $5.1 billion of equity and $1.9 billon of assumed debt.
On April 1, 2010, Air Products extended the expiration date of its tender offer for all outstanding shares of Airgas from April 9, 2010 to June 4, 2010; all other terms and conditions of the offer remain unchanged.
Airgas’ board has repeatedly rejected the offers based on the grounds that it highly undervalues the company and its future prospects, including its industry leading position in the packaged gas business, unrivaled platform and benefits expected from the substantial recent investments.
We believe Airgas’ strong market position, growth opportunities, strong brand identity, size and scale advantage, extensive U.S. distribution network, and product/service offering, diverse customer base and a multifaceted growth formula favor the company in the years ahead. However, the company is just beginning to see the impact from improving end markets as the manufacturing sector eventually recovers and returns to a growth environment. We remain cautious on the pace of the recovery and the company’s ability to offset rising operation costs with its announced price increase; and thus maintain a Neutral rating.
When compared to the Zacks target price of $67 and Airgas’ last three months’ average traded price of $63.77, we consider the Air Products’ offer of $60 per share to be undervalued and believe the company should wait for a better offer from Air Products or any other company.
Pennsylvania-based Airgas, Inc. is the largest U.S. distributor of industrial, medical and specialty gases, and hardgoods such as welding equipment and supplies. The company is also one of the largest U.S. distributors of safety products, the largest U.S. producer of nitrous oxide and dry ice, the largest liquid carbon dioxide producer in the Southeast, and a leading distributor of process chemicals, refrigerants and ammonia products.
Air Products, also based in Pennsylvania, serves customers in industrial, energy, technology and healthcare markets worldwide with a unique portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services.
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