Air Products Boosts LatAm Reach

In a bid to bolster its Latin American foothold, Air Products and Chemicals Inc. (APD - Analyst Report), the world’s largest hydrogen supplier, has agreed to buy a majority stake in Chilean industrial gas company, Indura S.A. The Pennsylvania-based industrial gas major has taken a major stride to acquire a 67% stake in the Latin American firm for $884 million. The Briones family, which controls Indura, has a put option for the remaining interest.

Santiago-based Indura is Latin America’s biggest independent industrial gas company with annual sales of $478 million. The entity, whose offerings include liquid bulk, small on-sites and packaged gases, has more than 20 production sites and over 100 retail outlets across the continent. Indura derives roughly 85% of its sales from packaged gas while the balance is essentially liquid bulk sales.

The acquisition, which is subject to specific closing conditions, is expected to close by early July. The deal is expected to usher in substantial growth opportunity for Air Product, placing it as Latin America’s second largest industrial gas producer. The acquisition will expand the company’s footprint to 12 nations in the region, allowing it to reap the benefits of greater economies of scale and quality manpower to serve customers in additional markets.

Air Products, which currently operates in Latin America through its fully-owned subsidiaries in Brazil and Argentina as well as its joint venture “Grupo Infra”, said that the deal is expected to be accretive to its earnings in fiscal 2013. With this takeover, the company is well placed to leverage Indura’s strong brand value and savor double-digit growth opportunity in one of the most promising markets globally.

Air Products has been hamstrung by the weak economic conditions in Europe, which is impacting the demand for its products and its financial results. The company saw lower profit and revenues in the last reported quarter. Its sales fell on account of lower volumes, reflecting softness in Europe.

As such, the Indura buyout will not only provide the company with a sizable growth opportunity but will also allow it to lessen its reliance on the beleaguered European markets, which added nearly 27% to its sales in the last quarter. Air Products noted, in a presentation, that the acquisition will offer it a $1.5 billion opportunity in Latin America, the second-highest growth region in the world following Asia.

Air Products, which competes with Praxair Inc. (PX - Analyst Report) among others, currently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.