WRAPUP 2-Airgas & Air Products results a prelude to court drama

Fri Jan 21, 2011 2:46pm EST

* Delaware court to hold poison pill hearing on Tuesday

* Profit at both Airgas, Air Products beats Street

* Airgas boosts dividend; Air Products raises forecast

* Air Products, Airgas shares barely budge (Adds conference calls, analyst; updates stock)

By Ernest Scheyder

NEW YORK, Jan 21 (Reuters) - It's almost as if no one cares anymore about Airgas (ARG.N) and Air Products' (APD.N) earnings.

Both industrial gas suppliers reported better-than-expected profit and revenue on Friday as sales to electronic makers jumped and gas distribution became more efficient. [ID:nN21205150] [ID:nN21195779]

Yet shares of both companies barely budged.

Wall Street is turning its attention to next Tuesday, when Delaware Chancellor William Chandler will consider whether to void a poison pill provision that Airgas has been using to defend itself against Air Products' $5.9 billion hostile offer. [ID:nN20186328]

"The real fireworks are next week," William Blair & Co analyst Ryan Merkel said. "The results from Airgas were a little better than people were thinking, and with Air Products, I thought the outlook was pretty good there."

For a graphic on earnings from Airgas and Air Products, click on: r.reuters.com/rex57r

The long-running M&A saga -- Air Products first went public with its offer on Feb. 5, 2010 -- shows little sign of abating. [ID:nSGE61406A]

Air Products and some Airgas shareholders sued Airgas last year, hoping to persuade the court that the poison pill, technically known as a shareholder rights plan, should not be used.

A poison pill effectively lets shareholders increase the total share count at a discount to ward off a potential acquisition.

Airgas Chief Executive Peter McCausland, who founded his company in the 1980s, is expected to feature prominently in the court hearing next week. His shareholders ousted him from the chairman of the board position last September in a vote widely seen as supportive of Air Products' bid. [ID:nN14275664]

McCausland ended back on the board after its size was increased to accommodate him. [ID:nN23156950]

At the same meeting last fall that ousted McCausland, Airgas shareholders decided to change their bylaws to meet again in January. Chandler, the Delaware jurist, sided with Airgas shareholders by allowing that meeting to go forward.

However, Delaware's top court eventually overturned Chandler, saying that Airgas must hold its annual meetings on the same schedule every year.

Chandler first held hearings on the poison pill last fall, but scheduled a second round of hearings for next week to gather more material for his final ruling.

Speculation has swirled that Chandler wants to have an air-tight case so that his decision on the poison pill stands. [ID:nN23159728]

Chandler's ruling is expected to be appealed either way. Investors are also keeping an eye on the first week of February, when Air Products' tender offer expires.

That deadline has been pushed forward several times, despite Air Products' insistence that $5.9 billion cash, or $70 per share, is its "best and final" offer.

"If that offer is 'best and final,' why extend it?" Morningstar analyst Basili Alukos said.

FULL COURT PRESS

Regardless of which way the courtroom drama unfolds next week, both Airgas and Air Products have been aggressively lobbying arbitrage investors, who now hold a majority of Airgas stock.

Just after posting its quarterly results on Friday, Airgas boosted its quarterly dividend by 16 percent, in part to highlight often-stated claims that it is financially healthy and has long-term growth potential.

"Airgas shareholders are just beginning to reap significant benefits as the economy recovers from the recession," McCausland said on a conference call with investors.

Air Products raised its fiscal second-quarter profit forecast to a range above Wall Street's expectations.

"We are well on our way to achieving double-digit earnings growth, improved return on capital and 17 percent operating margins in 2011," Air Products Chief Executive Officer John McGlade said.

In afternoon trading, shares of Air Products slipped 0.7 percent to $86.62 and shares of Airgas were 0.5 percent higher to $63.86.

Rivals of both companies include Praxair (PX.N), Linde (LING.DE) and Air Liquide [AIRLQ.UL]. (Reporting by Ernest Scheyder and Matt Daily; editing by Matthew Lewis and Tim Dobbyn)

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