Air Products & Chemicals Inc. (APD) has extended the expiration date of its tender offer for Airgas Inc. (ARG) for the second time, to August 13, 2010 from June 4, 2010. On April 1, 2010, Air Products had extended the expiration date for the first time from April 9, 2010 to June 4, 2010.
All other terms and conditions of the offer remain unchanged. Airgas is the largest U.S. distributor of industrial, medical and specialty gases, and “hard goods” such as welding equipment and supplies.
In October last year, Air Products had made a hostile bid for rival Airgas for an all-stock deal at $60.00 per share. Upon Airgas’ rejection, Air Products revised the tender offer to a “cash and stock” proposal with an implied value of $62 per share.
On rejection again by Airgas, Air Products upgraded its proposal for a second time to an all-cash deal of $60 per share of Airgas representing a premium of 38% from the closing price on February 4, 2010 and an 18% cash premium over the 52-week high. The total value of the transaction was approximately $7 billion, including $5.1 billion of equity and $1.9 billon of assumed debt. Airgas still believes that the proposal significantly undervalues the company.
Pennsylvania-based Air Products, however, argues that its proposal would prove beneficial to Airgas, which has a negative end-market outlook and an unfavorable earnings guidance. Airgas has no immediate strategic plan to enhance shareholders’ wealth.
Air Products is the world’s largest supplier of hydrogen and helium, and has a leading position in the gases business. With the acquisition of Airgas, it plans to foray into the North American packaged gas business. Air Products enjoys leading positions in growth markets such as semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives. The company is well positioned to capitalize on the cyclical recovery in its core industrial end markets.
For Airgas, we too believe Air Products’ offer of $60 per share undervalues the company, when compared with the Zacks target price of $67 and Airgas’ last three months’ average traded price of $63.77.
We maintain our Neutral recommendation on both Air Products and on Airgas.
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