Airgas Inc. (ARG) declared that its board of directors has yet again rejected Air Products & Chemicals Inc.’s (APD) final offer of $70 per share. The board stated that the offer price is still inadequate and below Airgas’ current value, which it estimates at no less than $78.
Air Products retaliated by standing firm on $70 per share — its “best and final offer” that was put forward earlier in December. Air Products had raised the offer from the previous bid of $65.50 per share. Air Products stated that the $70 per share offer is at a 61% premium to Airgas’ closing price of $43.53 as of February 4, 2010, the day before it first announced an offer to acquire Airgas. The current offer values the deal at $5.9 billion excluding debt.
The Airgas-Air Product conflict began in October 2009 when Air Products made an all-stock proposal offer at an implied value of $60 per share. After being rejected, Air Products upped its offer to a cash and stock proposal with an implied value of $62 per share in December 2009.
On February 5, 2010, Air Products made an unsolicited public offer of $60 per share in cash. On rejection, Air Products continued its efforts to woo Airgas, increasing its offer to $63.50 in July and then to $65.50 in September.
Airgas’ board had continuously rejected all the offers on the premise that they highly undervalue 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.
In fiscal 2010 ended March 31, 2010, Airgas recorded earnings per share of $0.69 and revenues of $3.9 billion. In its recently reported second quarter fiscal 2011, Airgas delivered adjusted earnings per share of 83 cents, reflecting a year-over–year growth of 22%.
Total revenue in the quarter increased 10% year over year to $1,061.7 million. As of September 30, 2010, Airgas had total assets worth $4.85 billion with a cash position of $53.3 million.
For the third quarter fiscal 2011, Airgas expects EPS in the range of 76 cents to 80 cents, an estimated year-over-year growth of 15% to 21% from the year-ago EPS of 65 cents. For full fiscal 2011, management projects EPS in the range of $3.22 to $3.32, depicting growth in the range of 20% to 24% over fiscal 2010. The company also stated that it is on track to beat its calendar 2012 earnings goal of at least $4.20 per share.
Air Products is the world’s largest supplier of hydrogen and helium, and has a leading position in the gases business. Airgas sells industrial and medical gases and provides gas equipment, welding products, tools, and safety gear. Both are based in Pennsylvania.
The Air Products and Airgas association would form the world’s largest industrial gas company. With the acquisition of Airgas, Air Products plans a foray into the North American packaged gas business.
We believe Airgas’ strong market position, growth opportunities, well-known 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 uncertainty regarding the Air Products takeover remains a definite overhang. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
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AIRGAS INC (ARG): Free Stock Analysis Report
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