Airgas rejects Air Products offer
Airgas Inc. confirmed that it has received an unsolicited proposal from Air Products & Chemicals Inc. to acquire the company for $60.00 per share.
The company noted that in December 2009 Airgas received a cash and stock proposal from Air Products with an implied value of $62 per share, and that in October 2009 Airgas received an all-stock proposal from Air Products with an implied value of $60 per share. The board, after consultation with its financial and legal advisors, unanimously determined that the proposals were not in the best interests of Airgas or its shareholders.
According to Air Products, the total value of the transaction is approximately $7.0 billion, including $5.1 billion of equity and $1.9 billon of assumed debt. Headquartered in Pennsylvania, the combined company 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: packaged gases, liquid bulk and tonnage. Air Products believes "a combination of the two companies would be financially and strategically compelling, with substantial cost synergies of $250 million by the end of year two, and the ability to accelerate growth both domestically and internationally by leveraging Airgas’ extensive U.S. sales force and packaged gases skills on the foundation of Air Products’ global presence and infrastructure." Click here to read the Air Products offer.
In responding to the proposal received in December, Airgas' board also noted that a significant portion of the consideration was in the form of Air Products stock, which has historically underperformed Airgas stock. In a letter sent to Air Products on Jan. 4, Airgas chairman and CEO Peter McCausland said the Air Products proposal "grossly undervalues Airgas." The letter added that "a combination of our two companies could destroy rather than create value." The full text of the letter is printed below.
January 4, 2010
Mr. John E. McGlade
Chairman, President, and CEO
Air Products and Chemicals, Inc.
7201 Hamilton Boulevard
Allentown, PA 18195
Dear John:
Our Board of Directors met and thoroughly considered the proposal set forth in your December 17 letter. It is their unanimous view that the Air Products proposal grossly undervalues Airgas. Therefore, the Board is not interested in pursuing your company’s proposal and continues to believe that there is no reason to meet.
Airgas’ management has consistently created long-term shareholder value, as measured by stock price appreciation and total shareholder returns (stock price appreciation plus dividends).
- In every cumulative annual period since 2000, measured from the first of each calendar year to Dec. 31, 2009, Airgas’ stock price has consistently outperformed Air Products’ with the exception of 2009.
- Airgas’ stock price appreciated 80% over the last five years and 415% over the last ten years, compared to just 40% and 145% for Air Products’ shares over the same periods.
- Airgas has achieved total cumulative shareholder returns of 22%, 89%, and 434% over the last three, five and ten years respectively, versus Air Products’ 23%, 56% and 197%. From the time of its initial public offering in December 1986, Airgas’ total shareholder return has exceeded 4,400% as compared to approximately 1,300% for Air Products over the same period.
Airgas’ entrepreneurial culture and customer-centric business model produced operating performance superior to that of Air Products through the last cycle, in expanding and contracting economic conditions. From CY2001 through CY2008, Airgas generated a 24% compound annual growth rate in operating income from continuing operations, compared to Air Products’ 8%.
Airgas’ associates, with the support of our Board of Directors and shareholders, have built the most valuable independent industrial gas company in the world. We have an outstanding performance record, and strong prospects for organic and acquisition growth in the coming years. Air Products’ unsolicited approach is simply an opportunistic attempt to buy Airgas at a bargain price, exploiting a brief anomaly in the historic comparative equity market performance of our two companies, just as the economy begins its recovery. Recent performance alone is not indicative of what our respective companies are capable of achieving. Under the terms of Air Products’ proposal, our shareholders would sacrifice real value and opportunity, and exchange a dynamic growth stock for one that has significantly underperformed Airgas stock over an extended period of time.
While we agree that the benefits of a letter writing campaign between our two companies have been exhausted, we strongly disagree with many of the assertions in your December 17th letter. In particular, we believe that a combination of our two companies could destroy rather than create value; that you underestimate the seriousness of your advisors’ conflicts; and that your characterization of my one conversation with you is inaccurate and misleading.
Air Products’ proposal grossly undervalues Airgas and its prospects for continued growth and shareholder value creation. Accordingly, our Board of Directors is not interested in pursuing your company’s proposal.
Sincerely yours,
Peter McCausland
Chairman and CEO
Based in Radnor, Pa., Airgas is the largest U.S. distributor of industrial, medical, and specialty gases, and hardgoods, such as welding equipment and supplies.
Headquartered in Lehigh Valley, Pa., Air Products supplies atmospheric gases, process and specialty gases, performance materials, and equipment and services. In 2009, it had revenues of $8.3 billion, operations in over 40 countries, and 18,900 employees around the globe.
INDUSTRIAL SUPPLY MAGAZINE
The May/June issue of Industrial Supply magazine features an in-depth cover story about GHX Industrial. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
