Just a few days after the news that Air Products was attempting a potentially hostile takeover bid for fellow gases & equipment major Airgas, Inc, fresh conjecture has emerged over the weekend.

The dust is far from settled on the biggest headline in our industry so far this year; if anything, there are more questions than answers arising.

The answer we’re all waiting for of course, is Airgas’ final decision on the proposed $7bn deal.

Until then, however, the conjecture continues.

Initial reaction to Friday’s announcement was a combination of shock, sensationalism, excitement and intrigue. By the close of the day, that all seemed to have given way to a feeling of impending hostility, with Airgas appearing reluctant to give way to an offer it felt undervalued its progressive operations.

By the same token, Air Products’ announcement was laced with the ominous suggestion that the company would be ‘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’.

So what’s the offer on the table? And what’s all the fuss about?

In what is reportedly the company’s third recent attempt to acquire the Airgas enterprise, Air Products announced it had tabled an offer to buy the Radnor, Pennsylvania-based company for $60.00 per share in cash - valuing the deal at around $7bn in total.

The transaction would include around $5.1bn of equity and $1.9bn of assumed debt. Airgas shares are believed to have jumped considerably following Friday’s revelation.

Later that day, a resolute Airgas released its own statement to the media and noted that it would ‘review the proposal with its financial and legal advisors’. The company also acknowledged the previous two bids from Air Products, in October and December 2009 respectively, and explained that, ‘after consultation with its financial and legal advisors, unanimously determined that Air Products’ proposals were not in the best interests of Airgas or its shareholders, as they grossly undervalued Airgas’.

In a further step, the progressive independent industrial gas distributor upped the ante in its press release, with the circulation of a letter sent to Air Products Chairman, President and CEO John McGlade from Airgas Chairman and CEO Peter McCausland.

Dated 4th January 2010, the epistle explains Airgas’ many reasons for rejecting the overtures of its fellow US industrial gas major. In closing, there’s an interesting sentiment which appears to be pertinent to the questions of many people associated with the industry.

It reads, “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.”

Questions mounting
With Air Products now making a very public third approach, questions are arising as to why the Lehigh Valley-headquartered company would want to mount such an ‘opportunistic attempt’. All that’s left of Friday’s initial reactions is the intrigue.

Whether it’s a ‘bargain price’ is a point the two companies, and their respective advisors, will no doubt continue to debate in the coming days, weeks and months. It’s worth remembering McGlade’s statement of Friday too though, where it was suggested that Air Products might be prepared to move the needle on that ‘opportunistic’ bargain valuation.

He said, “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.”

Determined words indeed. But why so? Why is Air Products so keen to swallow-up the entrepreneurial culture & operations of the McCausland-led Airgas, Inc?

Responding to the initial news on Friday, keen observer and Managing Director of Spiritus Consulting John Raquet, explained to gasworld, “This is an interesting development. If successful, Air Products would become a fully integrated gas company in the US for the first time since it sold its cylinder business to Airgas in 2002.”

“This would bring a large customer base to Air Products; Airgas has a $4bn business, mainly at the cylinder end of the business.”

Reason enough to push through a potentially hostile takeover bid? Perhaps. Raquet is left pondering a number of his questions himself though, from an independent industrial gas consultancy viewpoint.

And he’s clearly not the only one with more questions that answers. Conjecture has intensified this weekend in the chatroom of social media networking site LinkedIn.

Interesting development
In a ‘thread’ or discussion taking place in the Industrial Gas Professionals group, a former employee of US gases major Praxair, Inc. is left wondering why Air Products is so eager to re-enter the US distribution business it ‘walked away from’ years ago. He comments, “I find it interesting that they are making a play for Airgas, because it goes against their core competencies around bulk and onsite/electronics.”

While the same individual acknowledges that, “…on an integration point it may be easy to integrate this company, because Air Products has very little distributor business,” he also adds, “If I were (an) investor then I would want to know what I am getting for $7bn. The packaged gas business is shrinking in North America along with the Met Fab markets. The growth is not in North America for packaged gas, but, in China/India/Brazil/Russia.”

The same discussion is also raising other potential questions, concerning the actions of the fellow major industrial gas players no doubt keenly observing from afar.

With the almost inevitable divestitures required from an anti-trust perspective of any deal, the vultures could be circling and ready to pounce on any assets that need to be sold to see the transaction through.

Further still, it’s pointed out through the LinkedIn conjecture, with Airgas now possibly out there and in the marketplace, it isn’t inconceivable that another major could step in and scupper the deal.

Air Liquide, Linde anyone? Who knows.

We’ll no doubt be left deliberating the twists and turns of this particularly delicate deal for a good while yet. Air Products has put its cards on the table for all to see, while Airgas has played its poker face - revealing little more than its disdain for the former’s previous propositions.

You sense that this game of cat and mouse isn’t over just yet and perhaps, we could yet see some kind of shuffling of the pack as 2010 unfolds.

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