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Airgas to Buy Back Stock After Thwarting Air Products

Air Products Drops Airgas Bid After Court Loss
John McGlade, chief executive officer of Air Products & Chemicals Inc. Photographer: Bradley C. Bower/Bloomberg

Airgas Inc. said it will repurchase as much as $300 million of its outstanding shares after a Delaware judge upheld the company’s anti-takeover defense, ending a yearlong battle with Air Products & Chemicals Inc.

The buyback reflects Airgas’s confidence in the future, Chief Executive Officer Peter McCausland said today in a statement. Air Products dropped its $5.9 billion hostile bid for the packaged-gas supplier yesterday after Chancery Court Judge William B. Chandler III rejected a claim that Airgas’s poison-pill defense was flawed because it gave directors too much power to deflect offers for the company.

“We can continue to fund our growth strategies while realizing attractive earnings accretion from share repurchases,” McCausland said in the statement. Radnor, Pennsylvania-based Airgas said its board remains unanimous in its belief that the unsolicited bid was inadequate.

Airgas rose 62 cents, or 1 percent, to $64.35 at 4:15 p.m. in New York Stock Exchange composite trading. Air Products, based in Allentown, Pennsylvania, rose $4.39, or 4.9 percent, to $94.61, the biggest gain since June 2009.

Air Products pursued Airgas for more than a year, bidding as much as $70 a share. Airgas officials repeatedly rejected the advances, claiming it is worth at least $78 a share. Airgas’s board turned down the latest offer, which Air Products executives called their “best and final” bid, on Dec. 22.

“The board’s actions do not forever preclude Air Products, or any bidder, from acquiring Airgas or from getting around Airgas’s defensive measures if the price is right,” Chandler said in a 153-page ruling.

‘Great Disservice’

“The Airgas board of directors has done a great disservice to Airgas shareholders by never allowing them to decide for themselves whether they want to accept our $70 per share all-cash offer,” said John E. McGlade, the Air Products chairman. “Air Products has many other compelling growth opportunities around the world that we are continuing to pursue.”

Air Products is the second-biggest U.S. industrial-gases producer behind Praxair Inc. The company’s offer for Airgas, made public on Feb. 4, 2010, ranks as the eighth-longest-running hostile takeover offer in the U.S. since Bloomberg started tracking the deals more than a decade ago. Oracle Corp.’s 2003 bid for PeopleSoft Inc., which dragged on for more than 1 1/2 years, holds the record.

Airgas shares may decline to less than $60 as investors who bet on an Air Products takeover sell their stakes, said Thomas L. Hayes, a Minneapolis-based analyst at Piper Jaffray Cos. A stock buyback program would help buoy the stock, said Hayes, who rates Airgas “overweight” and doesn’t rate Air Products.

Staggered Terms

Chandler’s ruling reinforces the vitality of the poison-pill defense, said Charles Elson, a finance professor at the University of Delaware who runs the school’s Weinberg Center for Corporate Governance. Such defenses, designed to make takeovers prohibitively expensive, have been upheld by the Delaware Supreme Court in recent years as a legitimate tool for directors seeking to negotiate the best price for investors, Elson said.

“I think you’ll see more of a push to end staggered terms for directors rather than attacks on poison pills as a result of this decision,” Elson said in a phone interview.

Air Products argued in court filings that Airgas’s use of staggered director terms, which limit the number of board members up for election at any one time, in combination with the pill amounted to overkill. Airgas officials refused to deactivate the poison pill, saying in court filings that the company wasn’t being properly valued by Air Products.

‘Legitimate Purpose’

Chandler said the poison pill “served its legitimate purpose” in helping Airgas directors negotiate a higher price. He refused to second-guess the board’s judgment in maintaining the defense and rejecting a bid it saw as too low.

“As the Supreme Court has held, a board that in good faith believes the hostile tender offer is inadequate may properly employ a poison pill as a proportionate defensive response to protect its shareholders from a low-ball bid,” Chandler wrote.

Airgas officials were pleased with Chandler’s ruling, McCausland said in an e-mailed statement.

“It has always been our objective to create value for our stockholders, and we remain committed to achieving that goal,” McCausland said.

Airgas shares won’t be punished as much as they would have been a few months ago because the economy has improved the company’s prospects, Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a telephone interview.

‘Closed Chapter’

Air Products’ shares may gain from the end of its pursuit of Airgas, said Alexander, who rates Air Products “buy” and Airgas “hold.”

“This lets people focus on the underlying fundamentals of the company,” Alexander said. “The big question now is, what does Air Products do with their balance sheet?”

Air Products is interested in buying out joint-venture partners and will pursue “smart, add-on acquisitions” that drive growth globally in hydrogen, electronics and energy, Chief Financial Officer Paul E. Huck said today in a conference call.

The company doesn’t plan to pursue acquisitions the size of Airgas and will sell its 1.5 million Airgas shares, Huck said.

Airgas “was worth only so much,” McGlade said on the call. “This chapter is now closed and we are moving on.”

Wachtell Lipton Rosen & Katz LLP, the New York-based law firm whose partner Martin Lipton devised the “poison pill” defense in the 1980s, successfully defended Airgas in the suit. Wachtell was joined in the defense by Potter Anderson & Corroon LLP. Cravath Swaine & Moore LLP and Morris Nichols Arsht & Tunnell LLP represented Air Products.

The case is Air Products and Chemicals Inc. v. Airgas Inc., CA5249, Delaware Chancery Court (Wilmington).

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