Airgas founder loses seat on board; company vows court fight

Peter McCausland lost his seat on the board of Airgas Inc., which he founded 28 years ago and developed into a giant in the industrial-gases world, the Radnor company said Wednesday at its annual shareholder meeting.

Two other directors, W. Thacher Brown and Richard C. Ill, were also defeated, as shareholders opted for three directors nominated by Air Products & Chemicals Inc., which has pursued Airgas for 10 months in a hostile takeover fight.

The latest Air Products offer is $65.50 a share. Shares closed Wednesday at $67.16, up $2.31, in New York Stock Exchange trading. McCausland's stake in Airgas was worth $518 million at Wednesday's close.

Despite losing his position as chairman, at least temporarily, McCausland plans to keep fighting for independence. "I've competed against them for 25 years in the field," he said after the meeting in Drexel Hill at the Drexelbrook Corporate Center.

John E. McGlade, Air Products' chairman and chief executive officer, spoke briefly at the meeting, praising Airgas management for "building a wonderful company." Afterward, in a statement, he urged the Airgas board to follow the will of shareholders and negotiate. "Further delay serves no purpose," he said.

The next showdown will take place in a Delaware court over an Air Products shareholder proposal that requires Airgas to hold its next annual meeting on Jan. 18, which would give Air Products, of Allentown, the chance to quickly win a majority of the Airgas board seats.

The Airgas board has nine members. If Air Products succeeded in getting three more elected in January, the new majority could move on a sale. The directors elected Wednesday are John P. Clancy, Robert L. Lumpkins, and Ted B. Miller Jr.

The proposal on the annual meeting was approved by 51.8 percent of the votes cast, but not the two-thirds required by Airgas' bylaws, as Airgas contended. Air Products has argued that a majority is enough.

In a Delaware Chancery Court filing Wednesday after the meeting, Airgas called the proposal to hold the next annual meeting four months from now a "gimmick" that violates Delaware law because, among other things, it would prevent the next round of three Airgas directors up for reelection from serving their full, three-year terms.

McCausland, in his presentation at the meeting, tried to convince shareholders that an independent Airgas will deliver more than the $65.50 offered by Air Products.

But the pitch, including a presentation by Airgas chief operating officer Mike Molinini on the adoption of a new, companywide SAP AG software system, appeared to fall on mostly deaf ears.

Since Air Products publicized its effort to buy Airgas in February, short-term investors, known as "arbs," who are betting on the sale of Airgas, have piled into the stock.

For example, Pentwater Capital Management L.P., a Chicago hedge fund that invests in takeover situations, reported Airgas holdings of 971,600 shares on March 31. On June 30, Pentwater held 2.54 million Airgas shares, and on Wednesday Pentwater reported holdings of 6.26 million shares, or 7.5 percent of the company's shares, making it the largest stockholder behind McCausland.

Key for many Airgas stockholders is not the future benefit of SAP software. "It's about money," said one, chatting in a group after the meeting. "The stock will fall to $58" if Airgas is not sold.

If Air Products succeeds in buying Airgas for $5.5 billion in cash, a figure likely to continue climbing, it will surely please many stockholders, but then it will have an even tougher crowd to keep happy: Airgas customers.

One of them, Jim White, of JJ White Inc., a Philadelphia construction company that buys an estimated $3 million to $4 million worth of gas and welding supplies from Airgas each year, expressed concern about what would happen to customer service after a sale.

"To me, it's all about access" to managers who can solve problems, White said to McCausland during a comment period at the meeting.

A second Air Products proposal to receive a majority but less than two-thirds of eligible votes limits the Airgas board's ability to reseat McCausland as a director.

McCausland said the company would comply with that proposal and hire corporate governance and other experts to certify that he is qualified to serve on the board, as required by the adopted bylaw. That would make it possible for him to get back on the board.