Airgas Still Against Air Products Offer Despite New Directors

Airgas Inc. (ARG), in repeating its case against a hostile bid from Air Products & Chemicals Inc. (APD), emphasized the solidarity of its board, which includes three new directors whom Air Products got elected last month.

The new Airgas board on Tuesday sent a letter to Air Products unanimously rejecting Air Products's cash tender offer of $65.50 a share, calling it "grossly inadequate" and "not close to the right price." The board also unanimously said it's willing to authorize merger negotiations if Air Products gives it "sufficient reason" to believe the talks could lead to a price valuing Airgas "meaningfully in excess of $70 a share." The letter marks the first public communication from the new directors, who were nominated by Air Products in hopes of aiding its takeover bid.

Peter McCausland--Airgas chief executive, a director and its largest holder--said in an interview that the current offer represents little to no premium to where Airgas shares would be trading absent the Air Products offer, but he declined to put a finer point on a price that could start discussions.

Air Products's offer came during the trough of the worst economy since the Great Depression, he said, and after Airgas posted its only significant decline in adjusted earnings in 22 years. The offer doesn't fairly value Airgas, now that it back to reporting near-record earnings and solid growth, McCausland said. Airgas on Tuesday also reported fiscal-second-quarter results that beat its expectations and raised its full-year earnings guidance.

Air Products offered to buy Airgas in February for $60 a share, or about $5.1 billion excluding the assumption of Airgas debt. After Airgas's board rejected it, Airgas launched a hostile tender offer, which it has twice raised and thrice extended. The current offer is set to expire on Friday.

An Air Products spokesman couldn't promptly comment on Air Products's response to the letter and McCausland's assertions. Air Products, of Lehigh Valley, Pa., has said a merger with smaller rival Airgas, based in Radnor, Pa., would create the largest industrial gas company in North America and one of the largest in the world, and at the current offer price would be immediately accretive to Air Products's profits, excluding one-time costs.

It's not immediately clear if Air Products will extend its offer again or raise it, but with Airgas stock trading up 1% at $70.66 apiece, after earlier setting a new all-time high, it appears unlikely shareholders would overwhelmingly tender their shares. Large institutions and hedge funds who are among Airgas's largest holders didn't return email requests for comment on what price they would accept.

In addition to getting three of its nominees elected to the Airgas board, Air Products was able to get Airgas shareholder approval of three Air Products proposals, one of which would cause Airgas to move its annual meeting to January. This means Airgas would have two annual meetings, with two votes on the elections of directors, in the same fiscal year, which would allow Air Products the chance to get even more nominees on the Airgas board.

Airgas challenged the validity of this proposal in Delaware Chancery Court and lost, but it is appealing the decision to the Delaware Supreme Court, where oral arguments are set to begin next week. McCausland conceded it's typically easier to be the appellee than the appellant, but said he likes Airgas's chances of getting the ruling overturned.

McCausland said Airgas will argue, among other things, that the proposal was not in fact approved because it didn't have the affirmative vote of two-thirds of company's shares. It also is inconsistent, he said, with the rules allowing companies to stagger their board elections, a practice designed to prevent hostile parties from completely unseating a board with one ballot.

Commenting on how Air Products's successes at the September meeting have thus far had the opposite of their intended effects, McCausland noted that many hostile takeover targets have some sort of problem the aggressor can attack, whether it's the business, management or both. Airgas, however, is essentially "stronger than ever," he said, and has provided investors with total returns in the top 5% of the Standard & Poor's 500 Index since it went public nearly 24 years ago.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

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