Diversified chemicals company Air Products & Chemicals Inc. (APD) Friday said it has made an offer to acquire industrial, medical and specialty gases distributor Airgas, Inc. (ARG) for $60.00 per share in cash. The deal is valued at about $7 billion, which includes $5.1 billion of equity and $1.9 billion of assumed debt.
Air Products said it had made two written offers earlier, but Airgas rejected the offers and Air Products' requests to discuss them. Air Products stated that the current offer provides a 38% premium to Airgas shareholders based on Thursday's closing price of $43.53 and is 18% above Airgas' 52-week high.
The acquisition is expected to be immediately accretive to Air Products' earnings per share on both GAAP and cash basis, excluding expected one-time costs.
Air Products said it made the current offer in its letter to Airgas' Board of Directors yesterday, following the discussion between the chief executive officers of the two companies.
Air Products chairman, president and chief executive officer John McGlade said in the letter that the offer fully values Airgas' complementary capabilities and long-term growth prospects and would benefit Airgas shareholders with immediate liquidity in an uncertain economic environment. "In our prior correspondence, we clearly and repeatedly stated our flexibility as to both value and form of consideration, yet you have continued to refuse even to discuss our offers. Your unwillingness to engage has delayed the ability of your shareholders to receive a substantial premium," McGlade stated.
According to Air Products, the combined company based in Pennsylvania, would be the largest industrial gas company in North America and one of the largest in the world, with distinctive strengths across all geographies and in all three distribution channels such as packaged gases, liquid bulk and tonnage. A combination of the two companies is expected to deliver substantial cost synergies of $250 million by the end of year two, primarily related to reductions in overhead and public company costs, supply chain efficiencies, and better utilization of infrastructure.
While Air Products has a strong and profitable packaged gas business in Europe and other key international markets, it does not have a position in the U.S. packaged gas business where Airgas is the market leader. Air Products said Airgas' extensive U.S. sales force and packaged gases skills along with Air Products' global presence and infrastructure would accelerate the combined company's growth, both domestically and internationally.
Further, Air Products stated that it is fully committed to pursuing the transaction, and has secured committed financing from J.P. Morgan to complete the offer. Air Products is also prepared to make appropriate divestitures to address regulatory issues.
Air Products also said in the letter that the timing for the combination is ideal as the economy is just beginning to emerge from recession. "Together we would be able to take full advantage of the substantial growth potential, economies of scale, and synergies unique to this transaction," McGlade stated.
"While we are disappointed that Airgas has thus far prevented its shareholders from receiving a substantial premium and immediate liquidity, we have repeatedly communicated to the Airgas Board our willingness to improve our offer to reflect any incremental value they can demonstrate."
"While it remains our strong desire to reach an agreement with Airgas on a friendly basis, we are fully committed to pursuing this transaction and are prepared to take all necessary steps to complete it, including making an offer directly to Airgas shareholders," McGlade added.
McGlade also said Air Products would welcome the opportunity to meet with Airgas' chairman, president and chief executive officer Peter McCausland, or with any special committee of Airgas' independent directors which has been or will be formed to consider the offer, as well as their independent financial and legal advisors. "Finally, we reiterate our willingness to reflect in our offer any incremental value you can demonstrate," McGlade added.
J.P. Morgan Securities Inc. is the financial advisor for Air Products in the transaction and Cravath, Swaine & Moore LLP and Arnold & Porter LLP are the legal advisors.
Founded in 1940, Air Products serves customers in industrial, energy, technology and healthcare markets worldwide with a portfolio of atmospheric gases, process and specialty gases, performance materials, and equipment and services. In fiscal 2009, Air Products had operations in over 40 countries with revenues of $8.3 billion.
For the recently closed first quarter, Air Products posted a surge in its profit, benefited by an improving global economy and lower cost structure. The Trexlertown, Pennsylvania-based company reported net income attributable to Air Products of $251.8 million or $1.16 per share, compared to $68.6 million or $0.33 per share in the year-ago quarter. Sales declined 1% to $2.174 billion from last year's $2.195 billion.
Airgas, founded in 1982 and based in Radnor, Pennsylvania, distributes industrial, medical, and specialty gases, as well as hardgoods in the U.S. On September 8, 2009, Airgas replaced Cooper Industries (CBE) in the S&P 500 index.
Airgas said last month that its net earnings for the third quarter declined to $46.87 million or $0.56 per share from $62.90 million or $0.76 per share in the same quarter last year. Third-quarter sales were $0.94 billion, down 13% from $1.07 billion a year ago.
APD closed Thursday's trading at $73.69, down $2.5, on a volume of 1.49 million shares.
ARG dropped $0.72 and ended at $43.53 on Thursday, on 873,500 shares.
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