Airgas vows to make most of its win

Airgas Inc. founder and chief executive officer Peter McCausland got what he wanted last week when a Delaware judge upheld the Radnor company's antitakeover defenses, allowing it to avoid the clutches of Allentown's Air Products & Chemicals Inc. and remain independent.

Now the pressure is on McCausland, the board of directors, and top managers to make good on their argument that an independent Airgas will deliver to shareholders more than the $70 per share in cash that Air Products wanted to pay.

After the brutal takeover fight that started in October 2009, shareholders gave Airgas a vote of confidence Wednesday, the first day of trading after Air Products dropped its $5.9 billion bid. The shares remained in the mid-$60s, well above the $51 share price Air Products chief financial officer Paul Huck had predicted for Airgas shares - without the buoyancy of an Air Products takeover offer.

"We have as a team made it clear that our undisturbed stock price was in the low- to mid-$60s. It seems to me that the trading today sort of supports that view," McCausland said Wednesday.

Airgas shares closed Friday at $64.08. On Wednesday, the stock withstood the trading of 14.4 million shares - which amounts to 20 percent of the company's shares that are not held by management, directors, and employees - without falling sharply, as had been anticipated.

McCausland, a lawyer who founded Airgas in 1982 and built it into the largest U.S. distributor of packaged gases and related supplies to industries such as construction, medical care, and food manufacturing, said Airgas' 14,000 employees were up to meeting the high expectations set during the takeover fight.

"You have to look at our track record," he said, touting the company's strong performance relative to members of the Standard & Poor's 500-stock index since becoming publicly traded in 1986.

The stock has had periods of weakness, but its average annual return, including reinvested dividends, has been about 16 percent since the late 1980s, nearly twice the rate of the S&P 500.

Having another chance to build on that success as an independent company was considered a long shot a year ago, when Air Products took its bid directly to shareholders, despite Airgas' use of defensive measures to make a hostile takeover difficult.

Besides having a so-called poison pill, which effectively prevents an outside investor from buying more than 15 percent of the company's shares, it also has a staggered board of directors. That means only three of the company's directors are elected at each annual meeting, increasing the amount of time it takes for a hostile bidder to gain a board majority.

Mergers-and-acquisitions experts figured that either Air Products would succeed or a third-party would swoop in to buy Airgas. When additional bidders failed to materialize, Air Products was left to fight through the defenses.

Air Products appeared to gain ground when shareholders elected its slate of three directors at the annual meeting in September, replacing three incumbents, including McCausland. Shareholders also approved a measure requiring Airgas to hold its next annual meeting in January, just four months later.

But then things started falling Airgas' way. The Delaware Supreme Court ruled that the next meeting could not be held so soon, and the three new directors, who were paid $100,000 each by Air Products to stand for election, joined with the remaining incumbents in declaring the Air Products bid to be too cheap.

Finally, last week, Chancellor William B. Chandler III of Delaware's influential Chancery Court, issued "one of the most important corporate law rulings in a generation," according to Francis Pileggi, a lawyer with Fox Rothschild L.L.P. "It will stand as the most current and comprehensive explanation of the law that governs the duties of directors and the rights of shareholders in connection with a contest for control of a corporation," Pileggi said.

John M. McGlade, the strong-willed Air Products CEO who pursued Airgas for 16 months, said a day after the decision that "the Airgas board has done a great disservice to the Airgas shareholders" and that Airgas "was never a must-have for us."

Soon after Chandler's ruling, which stranded short-term investors who had bet billions that Airgas would be sold, stock analysts piled on with favorable ratings on Airgas, predicting that within a year the stock will sell for more than $70 a share.

"We continue to see a clear path for ongoing growth" for Airgas, Thomas L. Hayes, a senior research analyst for Piper Jaffray & Co., said in a note to investors. Hayes estimated that Airgas will earn $3.98 a share in the fiscal year that starts April 1.

That is well above the $2.34 per share Airgas reported for the year ended March 31, 2009, when its operations, which typically lag the rest of the economy, suffered the worst of the recession.

In fighting off Air Products, McCausland touted Airgas' strength coming out of past downturns. If the same rebound does not happen this time, some investors could be longing for a revival of the $70 per share from Air Products.

McCausland said Airgas can handle the pressure: "We're used to performance."