Air Products May Take $5.1 Billion Airgas Bid Hostile

Air Products & Chemicals Inc. said it may take a $5.1 billion cash offer for Airgas Inc. straight to shareholders after its rival spurned two prior attempts to create the largest U.S. industrial gas company.

The $60-a-share bid, 38 percent higher than Airgas’s closing price yesterday, follows two approaches that Airgas’s management rejected, Allentown, Pennsylvania-based Air Products said today in a statement. The offer is worth about $7 billion after including $1.9 billion in assumed debt, Air Products said.

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Air Products Chief Executive Officer John McGlade said he’s willing to take all necessary steps to acquire Airgas after requests for friendly talks failed. A combination would create a company with about $13 billion in sales, replacing current U.S. market leader Praxair Inc. and narrowing the gap on Air Liquide SA of France and Germany’s Linde AG.

“It’s a bold and interesting move,” John Racquet, managing director of industrial-gas advisory firm Spiritus Consulting, said in a telephone interview. “Air Products will become an integrated gas company and that’s long overdue.”

Airgas would bring a U.S. customer base for gas packaged in cylinders for clients such as hospitals. Air Products had exited that market after failing to gain the critical mass needed to match the profitability of larger rivals, Racquet said. Industrial gas companies separate air into components which are sold to steel, electronics or health-care clients.

Air Products shares trading in Germany declined to the equivalent of $71.17 as of 1:28 p.m. local time. The shares closed at $73.69 in the U.S. yesterday. Airgas climbed $18.22, or 42 percent, to $61.75 at 7:48 a.m., before the start of regular New York Stock Exchange composite trading.

‘Friendly Negotiations’

“While we would strongly prefer to proceed through friendly negotiations, you should not doubt our resolve to take the necessary actions to complete this transaction,” McGlade said in a letter to his counterpart at Airgas, Peter McCausland. “Your continuing refusal to engage with us will serve only to further delay your shareholders’ ability to receive a substantial all-cash premium.”

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Air Product’s Dec. 17 offer grossly undervalued Airgas and was unanimously rejected by the board, McCausland said in a Jan. 4 written response to McGlade.

“There is no reason to meet,” he said, adding that the benefits of corresponding via mail had been exhausted. Combining the two companies would not create value, he wrote.

Previous Offer

Airgas said it received a cash-and-stock offer of about $62 a share from Air Products in December and that shareholders should take no action at this time.

Radnor, Pennsylvania-based Airgas, which generated $4.35 billion in revenue in its last fiscal year, lowered its annual earnings forecast on Jan. 28, after slowing construction demand caused a dip in sales at its rental-welder business. The stock fell 9.8 percent in U.S. trading the next day.

Combining the two companies would generate “substantial” savings of $250 million, Air Products said in the statement.

Air Products, which is being advised by JPMorgan Chase & Co., said it’s prepared to make disposals to ease regulatory concern. JPMorgan has also committed funding to the transaction.

Airgas is the largest U.S. distributor of industrial, medical, and specialty gases and the largest producer in the country of nitrous oxide and dry ice, according to the company’s Web site. Founded in 1982 and built through more than 400 acquisitions, Airgas employs more than 14,000 people.

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