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Air Liquide to buy Airgas for US$10.3b in US expansion

[PARIS] Air Liquide SA's US$10.3 billion takeover of rival Airgas Inc gives the European company a leading share of the US market in industrial gases amid forecasts of further construction and manufacturing growth.

The US$143-a-share cash offer, which represents a 50 per cent 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 US supplier of gases used in welding and health care.

Buying Airgas, which gets 98 per cent of its revenue from the US, 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 US$5.9 billion hostile bid for Airgas when a Delaware judge upheld an poison-pill takeover defence.

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 US, where there is still growth.

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Within the US$13 billion-plus US market for packaged gases and welding equipment, Airgas has a 25 per cent 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.

Air Liquide shares were trading down 3.4 per cent at 119.40 euros at 9:04 a.m. in Paris. Airgas rose 29 per cent to close at US$137.35 in New York Tuesday. Both companies confirmed the deal in a statement after a Bloomberg News reported they were in talks.

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 US$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 US$3.8 billion, to expand its US presence.

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 US 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.

A 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 to 4 billion euros, and a combination of US dollar and euro long-term bonds. The enterprise value of the deal is US$13.4 billion.

Air Liquide is planning for more than US$300 million of pre-tax cost, efficiency and volume synergies, most within two to three years, the company said.

Air Liquide's gas and services sales in the Americas represented 24 per cent of its total revenue in gas and services last year. Combined with that of Airgas, the Americas would have accounted for 42 per cent with Europe representing 37 per cent and Asia-Pacific 19 per cent, Air Liquide 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.