Bloomberg News

Airgas CEO Says He’s Interested in Buying Taiyo Nippon Unit

December 20, 2011

(Updates with Taiyo Nippon’s comment in second paragraph.)

Dec. 16 (Bloomberg) -- Airgas Inc., the largest U.S. distributor of industrial gases, said it’s interested in acquiring the U.S. operations of Taiyo Nippon Sanso Corp. as part of a decades-long trend of consolidating the industry.

The Taiyo Nippon unit, known as Matheson, is the third- biggest U.S. distributor of industrial gases such as oxygen and nitrogen with annual sales of about $1.3 billion, Airgas Chief Executive Officer Peter McCausland said yesterday in a phone interview. Taiyo Nippon Sanso has “no intention at all” to sell its U.S. business, spokesman Norikazu Ishikawa said today in an e-mailed statement.

McCausland, 61, founded Radnor, Pennsylvania-based Airgas and has made more than 400 deals since the company’s initial public offering 25 years ago. While Airgas is looking for potential acquisitions with sales of $5 million to $60 million, it would consider Matheson and independent companies with about $300 million in revenue, he said.

“We wouldn’t mind acquiring Taiyo Nippon Sanso’s U.S. operations,” McCausland said, declining to specify whether Airgas has made an offer to the Tokyo-based company. “It’s not for sale; I’m just saying it would be a good fit someday.”

Taiyo Nippon Sanso got 16 percent of its sales, or about 78.6 billion yen ($1 billion), from North America in the year ended March 31, according to data compiled by Bloomberg. The company got 74 percent of its revenue from Japan and the rest was generated in the rest of Asia.

“We hope to be successful on a bunch of acquisitions,” McCausland said. “The focus is going to be on capex for growth, acquisitions and growing our dividend.”

Taiyo Nippon Sanso hasn’t been approached by Airgas, Ishikawa said.

Acceptance ‘Unlikely’

“Taiyo Nippon’s strategy is to expand overseas, including the U.S., as the domestic market matures,” said Masami Sawato, an analyst at Credit Suisse Securities Japan Ltd. “It’s unlikely the company would accept an offer.”

For Taiyo Nippon Sanso, expansion in the U.S. operations is “one of the most important objectives for our mid- and long- term corporate strategy,” Ishikawa said today in an e-mailed statement. “Taiyo Nippon Sanso continues to make large investments in the U.S., in areas such as energy and environment.”

Linde Purchase

Airgas’s largest acquisition was its $495 million purchase in 2006 of Linde AG’s U.S. bulk-gas business, which had annual sales of $154 million, according to data compiled by Bloomberg. The second-biggest deal was the $310 million acquisition a year later of Linde’s packaged-gas business, which had $346 million in revenue.

Taiyo Nippon closed down 0.9 percent to 542 yen in Tokyo. Airgas rose 1.9 percent to $76.48 in New York yesterday. It has climbed 22 percent this year, while the Standard & Poor’s 500 Materials Index has declined 15 percent.

McCausland, who defeated a hostile takeover attempt by Air Products & Chemicals Inc. in February, said he’ll consider retiring as CEO “in the next few years.” He plans to continue as chairman to ensure a smooth transition and because he’s still the largest shareholder, with a 13 percent stake, according to data compiled by Bloomberg.

Michael L. Molinini, who has been chief operating officer since 2005, is poised to be the next CEO, McCausland said.

“I think I speak for the board when I say he could be the CEO of the company,” McCausland said.

Three other executives behind Molinini are being groomed for senior leadership positions and also “have great CEO potential,” he said.

Improving Outlook

The outlook for the U.S. economy is improving, McCausland said. Airgas is seeing the fastest sales gains in welding equipment and in markets that serve the energy, chemicals and manufacturing industries, primarily in the upper Midwest and on the Gulf Coast, he said. That indicates an early-stage economic recovery, he said.

“We are in the third inning of a slow and steady recovery,” McCausland said. “We are wary of what is going on in Europe and in Washington.”

Earnings are at record levels and have room to grow because gas volumes are 5 percent below their pre-recession peak and welding and safety equipment volumes are 8 percent below their peak, he said. Airgas has almost fully restored employment levels after cutting its workforce by 7 percent during the recession that ended in June 2009, McCausland said.

Airgas is also poised to benefit from investment in new software and reassigning some salespeople to specific industries rather than geographies, he said.

McCausland said analysts’ estimates for 15 percent to 20 percent in annual growth in per share earnings over the next several years are “very reasonable.”

“I think we can do that,” he said.

--With assistance by Masumi Suga in Tokyo Editors: Andrew Hobbs, Indranil Ghosh

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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