Who Wins From The Air Liquide-Airgas Combo?

• Airgas, Inc. ARG shares have spiked 46 percent in the last 5 trading days, and are trading close to their 52-week high of $139.22.
• Deutsche Bank’s David Begleiter maintained a Hold rating on Airgas, with a price target of $143.
• Begleiter believes that the acquisition of Airgas by Air Liquide SA (ADR) AIQUY may be slightly positive for Air Products & Chemicals, Inc. APD and Praxair, Inc. PX.

Air Liquide has inked a definitive agreement to acquire Airgas for $13.4B. Analyst David Begleiter mentioned that the impact of this combination “should be slightly positive for Air Products, Praxair and the industrial gas industry.”

Impact On Air Products

The recent robust US results released by Air Products [Rated: Buy, PT of $160] indicate that "it is not necessary to own a packaged gases business to compete effectively in the US industrial gas market,” Begleiter stated. He added that this was the reason for Airgas being “a nice to have, but not a must have,” in the words of Air Products’ CEO.

Although Air Products is among Airgas’ largest gas suppliers, it represents less than 1 percent of Air Products’ total gases sales. “While we expect Air Products to lose some of this business, we do not believe they will lose all of it as Air Liquide does not have the supply network or the excess capacity to completely replace Air Products,” the analyst said.

Impact On Praxair 

Praxair [Rated: Buy, PT of $125] is the second-largest player in the US packaged gas industry, with a market share of 11 percent. The combination of Airgas and Air Liquide would likely not “materially change the competitive dynamics of the US packaged gas industry,” Begleiter said.

The Deutsche Bank report added that this development may work in Praxair's favor as the combined entity is likely to “take a step back from the acquisition of other packaged gas companies given their increased debt load.” Moreover, the integration of Airgas may cause some disruptions, aiding Praxair in picking up some additional business or Airgas personnel.