UPDATE: Air Products Bumps Bid For Airgas, Airgas Stock Falls

Air Products & Chemicals Inc. (APD) raised its hostile takeover bid for smaller rival Airgas Inc. (ARG), but investors sold Airgas shares as it could actually scuttle any hope for a deal.

Air Products raised its offer again, this time by 6.9% to nearly $5.9 billion, boosting the offer to $70 from $65.50 a share. Airgas investors, heavily populated by merger arbitrageurs banking on a deal, promptly sold Airgas stock; Air Products called $70 its "best and final" offer and threatened to walk away if a deal isn't reached soon, while Airgas has said any bidding on it must begin at $78 a share.

In any event, the dramatic saga that has played out privately for over a year --and publicly since February -- could be nearing a conclusion.

Airgas shares slumped 5.2% in recent trading to $62.55, and fell as low as $60.62 on the news, modestly above Air Products' initial public bid of $60 a share. Air Products shares rose 1.4% to $88.24 apiece.

Airgas in a press release said its board will review the offer per its fiduciary duty and advised its shareholders to take no action pending the board's review. The company has repeatedly turned down Air Products' approaches and told its suitor in November it values itself at a minimum $78 a share. A merger of the two Pennsylvania companies would create the largest industrial-gas purveyor in North America by revenue, and one of the largest in the world.

Airgas shares breached $70, Air Products' latest offer price, in early November, and eventually touched an all-time high of $71.28, as investors and arbs have been anticipating Air Products having to raise its offer again in an attempt to cinch a deal.

Air Products Chairman and Chief Executive John E. McGlade said, "It is time to bring this matter to a conclusion, and we are today making our best and final offer for Airgas. The Air Products board has determined that it is not in the best interests of Air Products shareholders to pursue this transaction indefinitely, and Airgas shareholders should be aware that Air Products will not pursue this offer to another Airgas shareholder meeting, whenever it may be held."

The two companies are embroiled in legal proceedings in Delaware Chancery Court over whether Airgas's shareholder-rights plan, commonly known as a poison pill, is valid. If Air Products can't get the pill overturned, its tender offer is effectively moot, and the judge in the case asked Air Products last week if the case should be decided with its previous, $65.50-a-share offer as the best and final one, given previous testimony by Air Products that it could bid higher.

Air Products had won Airgas shareholder approval to move forward the next Airgas annual meeting to next month, an effort to get three more Air Products nominees appointed to the Airgas board of directors. Airgas challenged the change to its bylaws but was shot down in Delaware Chancery Court before later being overruled in Airgas' favor by the Delaware Supreme Court.

Air Products garnered the approval in September at the same time it won an initial three seats that ousted three incumbent Airgas directors, a move it hoped would facilitate a quick deal between the pair. The move backfired, as the new Airgas directors promptly joined the remainder of the Airgas board in deeming a previous Air Products bid as "grossly inadequate" and eventually establishing the ostensible starting point for negotiations at $78.

Meanwhile Thursday, Air Product extended its tender offer a month to Jan. 14. As of the close of business Wednesday, 2.2 million of Airgas's 84 million shares had been tendered in support of the previous offer, up from 1.9 million as of Nov. 29.

Air Products first approached Airgas about a merger in October 2009. It then took its offer public early this year and launched a hostile takeover battle in February.

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

(Matt Jarzemsky contributed to this article.)

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