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Shareholders benefit from Airgas bid

11th February 2010 Print

Last Friday, the stock price of US smaller company Airgas rocketed following a hostile $60-a-share bid from Air Products.

Shares subsequently closed at $60.96, up 40% - a welcome consequence for shareholders such as F&C's Robert Siddles, who holds the stock in both the F&C US Smaller Companies investment trust and OEIC fund.

Bottled gas distributor Airgas benefits from high recurring revenues from the rental of cylinders. As a result, its business is solid and has a good long term record. Ironically, some years ago Airgas purchased Air Products' bottled gas operations amidst a series of acquisitions to consolidate its business.

"The Airgas Board formally rejected the offer this week, however we are not overly concerned given that industry pricing is about to improve and the bid seems low. Airgas's shares have performed much better than its suitor's over the long term; moreover, the CEO has a 9% stake in the company. The shares are trading above the bid, which means the market expects a higher bid, either from Air Products, a competitor, such as Air Liquide, or from management to take the company private," commented Siddles.

Siddles anticipates that it will be unlikely for Airgas to remain public and independent, a disappointing outcome given the stock has been an excellent holding since he purchased it in early 2003; during this period, it has risen around 250% compared with about 60% for the Russell 2000 Index.

He concluded: "Losing stocks to takeovers is a frequent problem due to our focus on free cashflow and cheap shares although last year there were only two, Avocent and Foundation Coal. We may lose Airgas; however we are encouraged by a bid at a large premium early on in the economic recovery."