Air Products goes public in bid for Airgas

After being rebuffed repeatedly in private since October, Allentown's Air Products & Chemicals Inc. went public yesterday with a $5.1 billion cash offer for Airgas Inc., a Radnor distributor of industrial gases and related goods.

The $60-a-share offer, which also included the assumption of $1.9 billion in debt, was a 38 percent premium to Airgas' Thursday close and just below its all-time-high stock price of $62.62 in June 2008.

Airgas' founding chairman and chief executive, Peter McCausland, rejected two previous Air Products offers, saying they "grossly undervalued" Airgas, according to documents released yesterday.

Air Products & Chemicals, which produces gases used by oil refiners, semiconductor manufacturers, and others, and is a major supplier to Airgas, also filed a lawsuit in Delaware's Court of Chancery aimed at forcing the Radnor company's board to negotiate.

The suit, filed Thursday, alleged that the Airgas board's refusal to engage in discussions with Air Products, or even to form a special committee of directors to consider the offer, violated its fiduciary duty and was a defensive posture "calculated to entrench McCausland as chief executive and chairman."

Airgas countered with a suit in Philadelphia that attempts to force the law firm Cravath, Swaine & Moore LLP to stop representing Air Products, alleging a conflict of interest.

Airgas did not respond to a request for an interview with McCausland, who founded the company in 1982 with the purchase of a Connecticut gas distributor and has since completed more than 400 acquisitions to build the largest U.S. company of its kind.

Airgas was a darling of Wall Street in the decade after going public in 1986, but in the late 1990s it hit a rough patch after an unsuccessful foray into tool distribution and a poorly executed restructuring.

Airgas shares hit a low of $4.63 in June 2000 and many doubted that the company could recover. But McCausland, whose stake in Airgas is worth $464 million based on the $60 offer, succeeded in reviving its fortunes.

Among his many deals was the 2002 purchase of Air Products' packaged-gas operations for $236 million. That deal was considered a victory for McCausland because many industry observers had viewed Air Products and other producers of gases as a huge threat to Airgas.

Air Products sold the packaged-gases business because "we had other priorities at that time," the company's chief financial officer, Paul E. Huck, said yesterday.

Air Products chief executive John E. McGlade said the timing was excellent for a new deal with Airgas. "It allows Air Products to reenter the U.S. packaged-gas market at a good point in the economic cycle," he said.

McCausland and McGlade agree, at least, on the state of the economy. "Air Products' unsolicited approach is simply an opportunistic attempt to buy Airgas at a bargain price . . . just as the economy begins its recovery," McCausland wrote in a Jan. 4 letter.

Edward H. Yang, an analyst at Oppenheimer & Co. Inc., called the $60 offer "likely only the starting point." Air Products said it was "fully committed" to the deal and willing to raise its price.

Bloomberg News reported a surge Thursday in trading of Airgas options that give holders the right to buy the company's stock.

"The increase in volume is highly suspicious," said Steve Sosnick, equity risk manager at Timber Hill L.L.C. in Greenwich, Conn. "If someone had information that a bid was going to happen, those calls would be the ideal way to play it."

Airgas shares closed up 40 percent, or $17.43, to $60.96 yesterday. Air Products shares shed $5.05 (6.85 percent) to close at $68.64.