Airgas’ Attempt to Foil Hostile Takeover Not Cheap…

June 1, 2010

Sometimes “no” really means “no,” and that seems to be the case in Airgas, Inc.’s (ARG) repeated rejection of Air Products & Chemicals, Inc.’s (APD) unsolicited takeover attempts.

It’s not exactly a David and Goliath situation, but Air Products – with a market cap of $14.66 billion – is practically three times as large as Airgas, which has a market cap of $5.19 billion. Air Products contends that a combined company would be “the largest industrial gas company in North America and one of the largest in the world.” Fighting off a much larger company isn’t an inexpensive proposition, and we got a glimpse into what that kind of fight costs from the annual report that Airgas filed late last week.

The duel began in early February, when Air Products (headquartered in Allentown, PA) made an unsolicited proposal to acquire Airgas (based in Radnor, PA). In addition to offering to buy all of Airgas’ outstanding shares of common stock for $60.00 cash per share, Air Products also tried (through a proxy fight) to get three directors elected to Airgas’ board. In its annual report, Airgas disclosed:

…Our Board of Directors carefully evaluated each proposal made by Air Products and, after consultation with its financial and legal advisors, unanimously determined that Air Products— proposals were not in the best interests of the Company or our shareholders, as they grossly undervalued Airgas. In response to Air Products— actions, we have recognized charges of $23.4 million in fiscal 2010 consisting of legal and professional fees, a significant portion of which represents up-front accruals for the minimum obligations to the Company’s advisors. Responding to Air Products— unsolicited tender offer and proxy contest may require us to incur significant additional costs.

That’s a huge sum, to be sure, but Airgas is battling a determined opponent. Air Products filed suit against Airgas, alleging that “The only obstacles standing between Airgas’s shareholders and due consideration of this high-premium offer are the shareholders— own entrusted fiduciaries—the Defendant Directors.” It claimed that it had “consistently stressed its flexibility on both the price and the form of consideration that Airgas’s shareholders would receive,” but that Airgas’ directors

“…refused even to meet with Air Products— representatives to investigate and understand the proposal in any detail. Upon information and belief, this ‘just say no’ defensive posture is calculated to entrench [Peter] McCausland as Chief Executive and Chairman and to protect the other Defendant Directors— positions in Airgas, at the sacrifice of the unique and valuable opportunity offered to Airgas’s shareholders.”

Not so, said Airgas’ founder, Peter McCausland, who told the reporter of this Philly.com article that Air Products was “trying to prevent them from stealing a future value.” McCausland opined that Air Products was trying to take advantage of the fact that Airgas’s cash earnings had declined for the first time in 22 years. He also said in that article that Airgas was “hitting its stride” and in a good position to grow bigger.

Since Air Products launched its hostile takeover bid, Airgas has filed more than 100 documents with the SEC; a large number of those filings relate to Airgas’ attempts to foil the bid and remain independent.

At this point, Air Products’ tender offer – which was originally to expire April 9 but then extended to June 4 – will expire this Friday. As this Reuters article points out, “…the more time goes by, the longer Airgas has to prove that it can be independently lucrative.” And Air Products’ CFO, Paul Huck, said recently that he didn’t plan to “bid against” himself by raising the offer unless Airgas agrees to negotiate. The same article reports that another company, Praxair, Inc. (PX) is considering whether to make a competing bid but hasn’t decided whether or not to do so.

By the end of this week, we may know the outcome of the fight. But even if the fight’s over, the bills for the battle will probably continue to arrive for quite some time.

Image source: Wikimedia

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