Eton Park Capital Supports Air Products' Latest Bid For Airgas ~ market folly

Thursday, December 16, 2010

Eton Park Capital Supports Air Products' Latest Bid For Airgas

Eric Mindich's hedge fund firm Eton Park Capital Management recently filed an amended 13D with the SEC regarding their stake in Airgas (ARG). Per the updated disclosure, Eton Park shows ownership of 7.15% of Airgas with 6,014,200 shares. Their position remains unchanged as they held this amount of shares at the end of the third quarter. This has been a longstanding merger arbitrage play in their portfolio.

Today we continue 'merger arbitrage day' on as we examine some of the largest trades hedge funds have put on in recent quarters. Eton Park mainly filed their amended 13D to publicly voice support behind Air Products and Chemicals' (APD) latest offer for Airgas. Here's Eton Park's statement:

"To The Board of Directors of Airgas, Inc.: As you know, funds managed by Eton Park Capital Management own more than 6 million shares, or approximately 7.15% of the outstanding shares, of Airgas, Inc. We write to express our views to the Board of Directors with respect to Air Products and Chemicals, Inc.’s $70 per share offer to acquire Airgas.

Until now, we have refrained from public comment on either Air Products’ efforts to acquire Airgas or on Airgas’ efforts to defend against the bid. We generally do not oppose poison pills or staggered boards and believe that the Airgas board to date has served its shareholders well. Airgas’ defense has forced Air Products to raise its bid several times. But now, circumstances have changed. Air Products has raised its offer to $70 a share and stated that the offer is best and final. In our view, the $70 per share bid is fair, represents an appropriate price for control of Airgas and, accordingly, presents an opportunity and not a threat to Airgas or its shareholders.

We believe the Airgas board should now either allow shareholders to accept Air Products’ revised offer or establish a clearly defined process designed to achieve greater value through an alternative control transaction."

So, given the lengthy nature of this takeover saga, Eton Park feels that Air Products' latest offer is fair and are fully in support of it. It will be intriguing to see if other hedge funds also publicly voice their support of accepting this offer as this has been one of the larger merger arbitrage plays in hedge fund land. If some funds support the latest bid while others oppose it, things could get very dicey.

Shares of ARG are currently trading around $63, about 11% lower than APD's offer of $70 per share. Since this is an arbitrage trade, keep in mind that Eton Park has most likely hedged this play somehow, possibly by shorting APD shares. We'll have to see if Airgas' board agree with Eton Park and accept the latest bid. For other activity out of Eton Park, we also detailed an increase in their Lonrho (LONR) stake.

Per Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies. Airgas is also a United States distributor of safety products, producer of nitrous oxide and dry ice, liquid carbon dioxide producer in the Southeast, and a distributor of process chemicals, refrigerants and ammonia products."

Stay tuned for one more merger arbitrage post this morning. In the mean time, check out our other hedge fund tracking here.

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