Photographer: Fabrice Dimier/Bloomberg

Air Liquide to Buy Airgas for $10.3 Billion in U.S. Push

  • Cash offer of $143 a share would be Air Liquide's biggest deal
  • French company plans capital increase of up to $4.3 billion

Air Liquide SA’s $10.3 billion takeover of rival Airgas Inc. gives the European company a leading share of the U.S. market in industrial gases amid forecasts of further construction and manufacturing growth.

The $143-a-share cash offer, which represents a 50 percent premium to the 20-day average price before Tuesday’s announcement, comes four years after Airgas fought off a hostile bid that was about half the value. The deal validates Airgas founder and Chairman Peter McCausland’s strategy of acquiring hundreds of smaller companies over three decades to form the largest U.S. supplier of gases used in welding and health care.

Buying Airgas, which gets 98 percent of its revenue from the U.S., would help Paris-based Air Liquide leapfrog competitors Linde AG, Air Products & Chemicals Inc. and Praxair Inc. to the top spot in North America. The deal comes four years after Air Products abandoned a $5.9 billion hostile bid for Airgas when a Delaware judge upheld an poison-pill takeover defense.

The “expensive” price Air Liquide is paying reflects “a hefty scarcity premium that still lingers in the consolidated world of industrial gases,” JPMorgan Cazenove analysts including Martin Evans wrote in a note Wednesday. The deal shows Air Liquide wants to broaden its portfolio and increase coverage in the U.S., where there is still growth.

Shares Fall

Air Liquide shares fell as much as 5.8 percent, the most since Aug. 24, and were trading down 4.8 percent at 117.70 euros at 10:18 a.m. in Paris. Airgas rose 29 percent to close at $137.35 in New York Tuesday. Both companies confirmed the deal in a statement Tuesday after Bloomberg News reported they were in talks.

“The US is a very attractive gas market, it’s the largest industrial gas
market worldwide,” Air Liquide Chief Executive Officer Benoit Potier said on a conference call about the deal. “It’s the fastest growing market among advanced economies.”

Low natural gas and energy prices are “driving investment and manufacturing,” he said.

Antitrust Concerns ‘Limited’

Within the $13 billion-plus U.S. market for packaged gases and welding equipment, Airgas has a 25 percent share, the most of any player, according to data compiled by the company, while Air Liquide is fourth. Antitrust concerns over the deal are limited, said Jason Miner, an analyst at Bloomberg Intelligence in Skillman, New Jersey.

The acquisition, which is subject to the approval of regulators and Airgas shareholders, would be Air Liquide’s biggest, according to data compiled by Bloomberg. The deal could also help the company overtake Linde as the world’s biggest industrial gas company by revenue. Air Liquide says it plans to realize more than $300 million of pretax cost savings, mostly within two to three years.

Air Liquide has been adding plants in North America, Asia and the Middle East to process gases used in the chemicals, refining, and electronics industries, while also expanding in medical gases and health-care services in Europe.

In 2012, Germany’s Linde similarly used its acquisition of Clearwater, Florida-based Lincare Holdings Inc., valued at about $3.8 billion, to expand its U.S. presence.

‘Number One’ Position

The deal puts Air Liquide “at the indisputable number one position, well ahead of Linde,” Kepler Cheuvreux analyst Martin Roediger wrote in a note.

The U.S. has become a growth priority for European industrial companies, attracted by lower energy costs. Airgas is an opportunity for Air Liquide to “re-balance” its portfolio of assets as growth in emerging and developed economies converge, the French company’s Chief Financial Officer Fabienne Lecorvaisier said in a phone interview.

“It’s the last game-changing deal in this industry, which will make us a leader
for a considerable number of years,” she said. The takeover accord includes a break-up fee that, while not offering complete protection from a rival offer, still makes it “very expensive” for someone to outbid Air Liquide, the CFO said.

Bridge Financing

Any competing bid is unlikely given the high premium offered by Air Liquide, analysts at Robert W. Baird & Co. said in a note.

Air Liquide has committed bridge financing for the transaction and intends to refinance the debt through a capital increase of 3 billion euros ($3.2 billion) to 4 billion euros, and a combination of U.S. dollar and euro long-term bonds. The enterprise value of the deal is $13.4 billion.

“We see this as a big price,” Societe Generale analysts including Peter Clark said in a research note. The deal adds 12.5 billion euros in debt to Air Liquide’s estimated net debt of 6.8 billion euros at the end of this year, they said.

Air Liquide’s gas and services sales in the Americas represented 24 percent of its total revenue in gas and services last year. Combined with that of Airgas,
the Americas would have accounted for 42 percent, with Europe representing 37 percent and Asia-Pacific 19 percent, the French company said in a presentation.

Barclays Plc and BNP Paribas SA are Air Liquide’s financial advisers on the deal and are also underwriting the bridge financing. Cleary Gottlieb Steen & Hamilton LLP and Bredin Prat are the French company’s legal advisers. Goldman Sachs Group Inc. and Bank of America Merrill Lynch are financial advisers for Airgas and Wachtell, Lipton, Rosen & Katz is the company’s legal adviser.

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