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Synergy Opportunities: APD outlined $250 M synergy opportunity after 2 years, driven by supply chain (~60%) and overhead
optimization (~40%). APD expects to implement similar cost-cutting programs utilized in its packaged gas business in Europe, such as Six
Sigma, SAP systems, and labor & inventory efficiencies. The cost of achieving this integration is expected to be $350M-$400M, which is
likely to be probably split roughly evenly between year 1 and 2.
Overall, we believe the $250 M target is “base case” assumption, and think APD should be able to exceed these targets once full utilization
of SAP systems is in place.
February 08, 2010
Air Products & Chemicals (APD - US$ 73.69) 1-Overweight
Accretive Acq of ARG Makes Sense for APD
We view the APD intended acq of ARG as positive
for APD forthcoming full vertical integration of its
US Industrial Gases business. We view this
transaction as a unique, once-in-a-decade
opportunity in a consolidated global industrial gas
business. Airgas has leading position in a much
improved US packaged gas business.
Airgas has a 25% market share, followed by PX at
12%, followed by Matheson, Air Liquide and Linde
each with less than 5%. APD has no overlap in
this business, therefore no antitrust issues are
expected for APD.
Assuming $60/sh announced price, we view this
acquisition to be accretive to APD by 39 c/sh in
2011 (1st year), including 40% of synergies. By