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LEHIGH VALLEY — Industrial gas supplier Air Products and Chemicals Inc. said Friday that it made an unsolicited cash bid of about $5.1 billion for smaller rival Airgas Inc. and is willing to make a hostile offer if necessary.
Airgas said its board will review the offer with financial and legal advisers and recommended that its stockholders not take any action yet.
A combination of the companies would create one of the biggest industrial gas companies in the world.
Air Products, which sells gasses including argon, nitrogen, hydrogen, helium and oxygen for industrial, medical and other uses, values the deal at approximately $7 billion, which includes $1.9 billion in debt. Like Air Products, Airgas sells gasses. It also provides gas equipment, welding products, tools, safety gear and janitorial supplies.
Oppenheimer analyst Edward Yang is skeptical about the combination. He noted that Air Products exited the U.S. packaged gases business by selling it to Air Gas in 2002.
"The strategic backpedaling by Air Products is unusual," Yang said.
Still, given Air Products' commitment to the deal, he expects it will sweeten its offer to coax Airgas to sell.
"The other reason Air Products may pay a bigger premium is because Airgas would essentially be the last large industrial gas merger as the industry is already an oligopoly," Yang said, adding that over the decades Airgas has built a leading position with a 25 percent share in the U.S. packaged gas sector.
"It would be difficult to replicate," he said. Looking at industry peers, Yang said Air Liquide, one of the world's biggest makers of industrial gases, may be the only other competitive bidder.
Deutsche Bank analyst David Begleiter said rival Praxair Inc.'s sizable share of the U.S. packaged gas business may keep it from buying Airgas due to antitrust issues.
Air Products previously made two written offers for its competitor, which were rebuffed. Airgas said it turned down those bids because it felt that they "grossly undervalued" the company and were not in its shareholders' or the company's best interests.
Chairman, President and CEO John McGlade said in a statement that the company told Airgas' board repeatedly that it was willing to raise its offer "to reflect any incremental value they can demonstrate."
Air Products, based in Allentown, Pa., said it will not be deterred if Airgas, based in Radnor, Pa., continues to turn down its bids.
"While it remains our strong desire to reach an agreement with Airgas on a friendly basis, we are 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," McGlade said.
Air Products said it already has committed financing from J.P. Morgan to close the acquisition and is willing to make appropriate sales to contend with regulatory issues.
If the transaction goes through, Air Products anticipates it will immediately add to its earnings per share, excluding one-time costs.
Deutsche Bank's Begleiter expects Air Products stock to be pressured by what will likely be a drawn out takeover battle. He downgraded the stock to "Hold" from "Buy."
In afternoon trading, shares of Air Products lost $5.58, or 7.6 percent, at $68.11. Airgas shares soared $16.73, or 38 percent, to $60.27. Earlier in the day the stock touched $62.82, a level it has not reached since June 2008.
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Associated Press writer Michelle Chapman in New York contributed to this report.
