Airgas Meets Expectations and Rebuffs Takeover Offer Again (ARG, APD, AXE)

Industrial equipment supplier Airgas, Inc. (NYSE:ARG) reported second fiscal quarter 2011 results today that were pretty much in line with expectations. EPS, excluding items, came in at $0.83 on sales of $1.06 billion. That beat estimates on EPS by a penny and hit revenue right on the nose.

Competitor Anixter International Inc. (NYSE:AXE) also reported earnings this morning, posting EPS of $1.08, excluding items, which beat estimates of $1.03 and topped revenue estimates of $1.38 billion to post $1.4 billion in sales.

Airgas also raised its full-year earnings forecast from $3.15-$3.30 to $3.22-$3.32 and predicted a third-quarter profit of $0.76-$0.80. Analysts had estimates of full-year profits of $3.27 and third quarter EPS of $0.80, so not much cause for excitement there. Airgas also reiterated its rejection of a $65.50/share hostile takeover bid from Air Products and Chemicals, Inc. (NYSE:APD).
Anixter’s outlook for its fourth quarter was even less exciting. The company said it expects seasonal factors “to lead to a slight decline in consecutive quarter sales in the fourth quarter.” The expected sales drop is -4.8%. That is not music to an investor’s ear.
If there is any excitement in the sector, it comes from Air Products’ continuing attempt to get control of Airgas.

Following today’s earnings report, Airgas released a letter from it’s chairman saying that all 10 of Airgas’s directors believe that the $65.50/share offer is “grossly inadequate” and “not close to the right price.” The letter went on to say that every director also thinks that Airgas is worth “meaningfully in excess of $70 per share.”

That’s interesting because three of Airgas’s 10 board members were put there by Air Products. The Air Products takeover has been cleared by the Federal Trade Commission, with Air Products saying that it will sell several assets within four months of a completion of the deal for Airgas.
Airgas moved up its annual meeting by eight months, to January 2011, in a move that Air Products unsuccessfully fought in court. Air Products intends to nominate three more candidates for director, and if they are successful, Air Products would take control of the board.

But if, like the other three, the new directors go native, that may still not be enough for Air Products to gain control for less than $70/share. From early February, when Air Products first made its offer, Airgas shares have jumped from $44.25 to just over $70. Apparently investors don’t think that Air Products will sweeten its offer to more than that.
Airgas shares are up about 1% today, and Anixter shares are down about 1.5%. Air Products shares are off slightly as well.
Paul Ausick