Air Products and Chemicals Inc. (APD) has made a third revision to its take-over offer price for rival Airgas Inc. (ARG). Air Products is now offering $65.50 per share in cash, up 9% from the initial offer price of $60 per share (all in cash). The new offer values Airgas at $5.48 billion and represents a 50% premium over the closing price of Airgas’ shares on February 4, 2010, the day before Air Products announced its proposal to acquire Airgas. Air Products claims that the deal at $65.50 per share would be immediately accretive to earnings.
However, Air Products stated that it would withdraw the offer if Airgas’ shareholders do not elect the scheduled board and approve the proposed bylaws. At its annual meeting on Sept. 15, 2010, Air Products wants Airgas shareholders to elect its three nominees to its board and approve some bylaw proposals, which include some alterations to director eligibility requirements and cancellation of all the bylaw amendments done after April 7th of this year. The transaction would also require Airgas to conduct annual meetings in January.
In October last year, Air Products had made a hostile bid for rival Airgas for an all-stock deal of $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 of $43.53 on February 4, 2010 and an 18% cash premium over the 52-week high. The total value of the transaction was about $7 billion, including $5.1 billion of equity and $1.9 billon of assumed debt. However, Airgas rebuffed the proposal stating that the offer grossly 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 unfavorable earnings guidance. Airgas has no immediate strategic plan to enhance shareholders’ wealth. Airgas still believes that the offer is inadequate and would review the offer letter.
Air Products is the world’s largest supplier of hydrogen and helium, and has a leading position in the gases business. Airgas, of Radnor, PA, sells industrial and medical gases and provides gas equipment, welding products, tools, and safety gear.
The Air Products and Airgas association would form the world’s largest industrial gas company. 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, Air Products’ offer of $65.50 per share reflects a modest premium over the Airgas’s last three months’ average traded price of $64.29. The offer is also below the company’s 52-week high of $66.99.
We maintain our Neutral recommendation on both Air Products and on Airgas.
AIR PRODS & CHE (APD): Free Stock Analysis Report
AIRGAS INC (ARG): Free Stock Analysis Report
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