Airgas Says Acquisitions May Add $150 Million to Sales

Airgas Inc. (ARG), the largest U.S. distributor of industrial gases, said acquisitions may add $150 million to sales this year as the number of potential targets increases.

“We expect to have a pretty good year in acquisitions,” Chief Executive Officer Peter McCausland said today in a telephone interview. “Our pipeline is much better than it was a year ago.”

McCausland, who founded Airgas and expanded the company with more than 400 acquisitions over 28 years, said he is working on “larger deals” to gain regional packaged-gas distributors with sales of $25 million to $40 million. Acquiring $150 million of sales this year is “not an unreasonable number,” he said.

“We don’t have any limit in terms of our balance sheet because we could finance some very huge deals,” he said.

Airgas is also using cash to buy back stock. About 4.8 percent of shares were repurchased for $300 million in the first three months of the year and the planned repurchase of another $300 million of shares announced today will reduce the company’s share count to levels last seen in 2004 to 2005, he said.

The company plans no more buybacks after the current authorization and may issue commercial paper, McCausland said on an earnings conference call today.

Failed Takeover

The repurchases are partly intended to facilitate the transition of the company’s investor base from arbitrage investors, who bought shares during the failed takeover bid by Air Products & Chemicals Inc. (APD), to longer term shareholders, McCausland said. Arbitrage investors hold less than 20 percent of shares, down from more than 50 percent, he said.

McCausland said the rise in the company’s shares since Air Products withdrew its offer on Feb. 15 validates the board’s stance that the $70-a-share offer undervalued Airgas.

Airgas fell 32 cents to $67.35 at 4:15 p.m. in New York Stock Exchange composite trading. The shares had gained 7.8 percent this year.

“This proves there was very little or no premium in the Air Products offer,” McCausland said. “The satisfaction I’m feeling is we prevented Air Products from stealing Airgas from our shareholders.”

The U.S. economy is broadly recovering, aided by companies that are investing cash in new plants and employees, inexpensive natural gas relative to oil and a weakening dollar that boosts exports, he said.

Disrupting Supplies

Net income in the three months through March 31 rose 56 percent to $62.6 million, or 74 cents a share, from $40.1 million, or 47 cents, a year earlier, Radnor, Pennsylvania-based Airgas said today in a statement. Sales gained 12 percent to $1.1 billion.

Profit was 88 cents a share excluding costs related to fending off Air Products’ hostile takeover bid, Airgas said. That topped the 85-cent average estimate of 12 analysts surveyed by Bloomberg.

An explosion and fire at one of two Carbide Industries plants is disrupting supplies of calcium carbide, a raw material for acetylene, the company said today on the conference call. Acetylene comprises 3 percent of Airgas sales, and the company has declared “force majeure” on deliveries of the welding gas.

Full-year earnings will rise to $3.75 to $3.90 a share, Airgas said. Analysts projected $3.86, the average of 11 estimates compiled by Bloomberg.

To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.

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