Business Context and Reporting Period
Company: Air Products & Chemicals, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: July 13, 1999
Event: Announcement of a joint recommended cash offer with L'Air Liquide S.A. to acquire The BOC Group plc.
Key Financial Metrics and Transaction Details
- Offer Price: UK£14.60 per share in cash.
- Total Transaction Value: Approximately $11.2 billion (UK£7.2 billion).
- Air Products Contribution: Approximately $5.9 billion in cash.
- Financing: Funded through debt financing via a credit facility with The Chase Manhattan Bank (total commitment of UK£3.95 billion).
- Projected Post-Transaction Scale (Air Products):
- Annual Revenues: Approaching $8 billion.
- Total Assets: Approximately $13 billion.
- Geographic Footprint: Expansion from 31 to over 50 countries.
- Historical Financials (Air Products):
- Fiscal Year Ended Sept 30, 1998: Sales of $4.919 billion; Net income before special items of $489 million.
- Interim Six Months Ended March 31, 1999: Sales of $2.528 billion; Net income before special items of $231 million.
Material Changes and Strategic Rationale
The transaction represents a fundamental shift in Air Products' global footprint and competitive scale. Key strategic changes include:
- Asset Acquisition: Acquisition of complementary assets to increase size and scale globally.
- Geographic Expansion: Significant growth in high-growth areas, particularly Asia (Singapore, Southern China, Malaysia) and Australia/New Zealand.
- Market Position: Enhanced capabilities in specialty gases, HYCO (hydrogen/carbon monoxide), and merchant market capabilities in carbon dioxide in the U.S.
- Ownership Structure: Air Products and Air Liquide will form a UK-based holding company to make the offer. Operations will be split approximately equally, with Air Products taking BOC operations in Australia, New Zealand, and significant Asian interests, while Air Liquide takes UK, Ireland, Japan, and Thailand operations.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Earnings Impact: Air Products expects the transaction to enhance cash earnings per share (earnings plus amortization, transaction fees, and costs) from the first full year following completion.
- Accretion: The deal is expected to be accretive to earnings per share post-goodwill amortization by the end of the second year.
- Strategic Focus: CEO Hap Wagner stated the deal aligns with the strategy of building a leading global industrial gas company and serving global customers on a broader base.
Risks and Contingencies
- Regulatory Approval: The offer is subject to regulatory clearances in the UK, EU, US, Canada, Australia, and New Zealand. Clearances are expected within six months.
- Break Fee: If the offer lapses due to regulatory pre-conditions not being met, Air Products and Air Liquide have agreed to pay BOC a fee of $100 million in aggregate.
- Forward-Looking Statements: Risks include unanticipated tax costs, inability to amortize goodwill over 40 years, economic conditions, and fluctuations in interest rates and foreign currencies.
Investor Verification Checklist
- Verify the status of regulatory approvals in the EU, UK, US, and other jurisdictions required to close the deal.
- Confirm the final terms of the debt financing and the impact on Air Products' leverage ratios post-closing.
- Monitor the timeline for the split of BOC operations between Air Products and Air Liquide to ensure the expected geographic assets are retained.
- Review the actual realization of synergies and cost savings compared to management's projections in the first and second years post-completion.
- Assess the impact of goodwill amortization on reported earnings per share versus cash earnings per share.