MS APD Initiate Coverage

Document Sample
MS APD Initiate Coverage Powered By Docstoc
					                                                                             MORGAN            STANLEY              RESEARCH
                                                                             NORTH          AMERICA


                                                                             Morgan Stanley & Co. Incorporated   Paul Mann, CFA
                                                                                                                 Paul.Mann@morganstanley.com
                                                                                                                 +1 (1)212 761 3865

                                                                                                                 Charles A Dan
                                                                                                                 Charles.Dan@morganstanley.com
                                                                                                                 +1 (1)212 761 4793

                                                                                                                 Sophia Xia
                February 16, 2010                                                                                Sophia.Xia@morganstanley.com
                                                                                                                 +1 (1)212 761 3585


Stock Rating    Air Products and
Overweight

Industry View
                Chemicals Inc.
In-Line
                Our Preferred Gases Name                                     Key Ratios and Statistics
                                                                             Reuters: APD.N Bloomberg: APD US
                with Consensus Forecast                                      US Chemicals / United States of America
                                                                             Price target                                                       $91.00
                Upside; Attractive Valuation                                 Shr price, close (Feb 12, 2010)                                    $68.53
                                                                             Mkt cap, curr (mm)                                                $14,757
                                                                             52-Week Range                                                $85.42-43.45
                We are initiating coverage of Air Products with an
                Overweight rating and a $91 price target. We see             Fiscal Year ending                     09/09   09/10e     09/11e     09/12e

                upside to consensus forecasts, and the stock is trading      Revenue, net ($mm)                     8,256    9,172 10,128 11,234
                at a 25% discount to its average NTM P/E ratio.              EBITDA ($mm)                           2,028    2,368  2,654  2,915
                                                                             ModelWare EPS ($)                       4.07     5.01   5.60   6.28
                Greater cyclicality will drive upside to consensus:          Consensus EPS ($)§                      4.06     4.93   5.59   6.19
                Air Products is more cyclical than most investors            P/E                                     19.0     13.7   12.2   10.9
                                                                             EV/EBITDA                                9.9      7.7    6.9    6.2
                appreciate. We estimate that volumes declined by 16%
                                                                             Div yld (%)                              2.3      2.7    3.0    3.4
                in 2009 compared to the 8% assumed by consensus              Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare
                                                                             framework (please see explanation later in this note).
                and this greater cyclicality could lead to a positive        § = Consensus data is provided by FactSet Estimates.
                earnings surprise during an economic recovery. We            e = Morgan Stanley Research estimates

                forecast 11% revenue growth versus consensus at 9%
                (2009–12 CAGR).

                Growth from electronics and Brazilian hydrogen:
                Emerging markets and electronics drives majority of
                growth over the next 1–3 years. Praxair (EW) has better
                EM exposure, but APD is the global leader in electronics
                and hydrogen. We see limited hydrogen growth in
                regions other than Brazil, where we expect $1.7 billion of
                additional revenues between 2010 and 2017 to support
                10% revenue CAGR in until 2018.

                Airgas M&A could be ~11% accretive: At $65 per
                ARG share (vs. current $60 bid), APD could leverage its
                $250mn synergy target (8% of ARG OpEx) into $0.78 of
                incremental EPS (i.e. proforma 2013 valuation of 6.6x
                EV/EBITDA and 9.1x P/E). Our $91 price target does not
                include any value from an Airgas deal.

                Trading well below historical averages. Air Products         Morgan Stanley does and seeks to do business with
                is trading on a 2011e P/E multiple of 12.2x and              companies covered in Morgan Stanley Research. As
                                                                             a result, investors should be aware that the firm may
                EV/EBITDA of 7.0x, a 25% and 15% discount to its
                                                                             have a conflict of interest that could affect the
                historical NTM averages of 16.3x and 8.3x. Our $91           objectivity of Morgan Stanley Research. Investors
                price target is supported by DCF analysis.                   should consider Morgan Stanley Research as only a
                                                                             single factor in making their investment decision.
                Please see our Industrial Gas report, “Defensive, Yes,       For analyst certification and other important
                but also a Surprising Recovery Play”, published today.       disclosures, refer to the Disclosure Section,
                                                                             located at the end of this report.
                                                                                                         MORGAN                       STANLEY       RESEARCH

                                                                                                         February 16, 2010
                                                                                                         Air Products and Chemicals Inc.




Risk-Reward: Air Products & Chemicals, Inc. (APD.N, $69, Overweight, PT $91)
Risk-Reward View: Unappreciated Cyclical Upside, M&A Option Value                                                                               Investment Thesis
    $140                                                                                                                                        Out-of-consensus top pick in attractive
                                                                                                             $133 (+94%)
                                                                                                                                                Industrial Gas subsector: Upgrades to
      120                                                                                                                                       consensus forecasts likely; recent
                                                                                                             $113 (+65%)
                                                                                                                                                pullback creates attractive valuation;
      100
                                                                                                                                                option on Airgas (hostile M&A)
                                                                                                           $91.00 (+33%)
                                                                                                                                                potentially adds $0.75–1.00 to EPS.
       80                                                                         $ 68.53
                                                                                                                                                Positives:
       60                                                                                                     $59 (-14%)                        • Industry pricing power is strong, due
                                                                                                              $51 (-26%)
                                                                                                                                                  to high barriers to entry, placid
       40
                                                                                                                                                  competitive landscape, limited
                                                                                                                                                  substitutes and long-term
       20
                                                                                                                                                  pass-through contracts.
       0                                                                                                                                        • Consensus underestimates cyclical
       Feb-08              Aug-08            Feb-09             Aug-09               Feb-10        Aug-10                                         upside (i.e. “lost” revenues in 2009).
            Price Target (Feb-11)                Historical Stock Performance                 Current Stock Price   WARNINGDONOTEDIT_RRS4RL~~   • Airgas acquisition creates value for all
 Price Target $$91                    Blended average of DCF ($101), mid-cycle PE ($91), EV/sales                                                 parties involved (see page 6)
                                      ($93) and dividend discount model ($78). Assumes 8.2% WACC,                                               • Compelling valuation (see page 10)
                                      10.1% cost of equity, and 16.3x mid-cycle PE (inline with the                                             Risks:
                                      historical NTM Air Products P/E multiple).                                                                • Returns on new projects could be
 Bull              17.4x              Cyclical upside: 6% global growth drives EBITDA surprise as                                                 depressed if competitors become
 Case              Bull Case          volumes surpass pre-recession levels (due largely to the capacity                                           more aggressive in the bidding
 $113              2011e              slack “hidden” by new project openings in 2009). Extreme Bull                                               process (as happened in the 1990s).
                   EPS of $6.49       Case value of $133 driven by potential value of Airgas acquisition.                                       • Channel checks indicate demand in
 Base              16.2x              Pipeline plus macro recovery: Mixed global recovery (4% global                                              Asian hydrogen may not be as strong
 Case              Base Case          GDP growth), but enough to see rebound in Electronics segment                                               as consensus expects
 $91               2011e              (cyclical chemicals business); few H2.contracts after current                                             • Uncertain timing of ARG acquisition
                   EPS of $5.60       pipeline, but still incremental demand for air separation.                                                What would make us less positive?
 Bear              12.0x              Tepid recovery keeps capacity utilization low, and pipeline                                               • If fears of a double-dip recession
 Case              Bear Case          dries up post-2012: Weak recovery (2% global GDP growth)                                                    increase, APD could underperform as
 $59               2011e              limits organic growth; growth capex declines 80% from 2010 levels                                           some competitors are more defensive.
                   EPS of $4.89       post-2012. Extreme Bear Case of $51 assumes APD overpays for                                                Also, indications that APD would
                                      ARG and issues equity to do so (very unlikely, in our view).                                                overpay for ARG (i.e. $70+), or would
Price Reflects Pessimism on ARG Deal & Industry Economics                                                                                         need to issue equity, would make us
                                    Merchant           Tonnage           Electronics &                                                            less positive on the deal.
                                     Liquids           Contracts            Chems.            Airgas M&A
                                                                                                                                                Potential Catalysts
                                                                                                  $20
 Extreme Bull $133
                                                                                                                                                • New contract signings – expect large
                                                          $10                   $2
                                                                                                                                                  Brazilian announcement in mid-2010
                                                                                                                                                • ARG board elections in August 2010
                                      $11

         Base $91


                                     ($12)                                                                                  Current price
                                                                                                                                $68
                                                         ($16)
 Extreme Bear $51                                                               ($3)
                                                                                                  ($8)


Source: Morgan Stanley Research, FactSet




                                                                                                                                                                                       2
                                                                                                                  MORGAN            STANLEY                     RESEARCH

                                                                                                                  February 16, 2010
                                                                                                                  Air Products and Chemicals Inc.




Investment Debates: Cyclicality, Energy Exposure (H2), Margins
1. Will residual effects of the financial crisis       Components of revenue growth highlight cyclicality
result in lower growth in 2011 and 2012?                                                            11500            Consensus View                                            Morgan Stanley View

                                                                                                    11000                                     $810m of new
Market’s view: The lack of new contracts signed                                                                                               contracts added                              16% decline in
                                                                                                    10500                                                                                  revenues due to
in 2008-2009 will lead to a slower growth.                                                                                  8% decline in revenues                                         economic
                                                                                                    10000                   due to economic                                                downturn
                                                                                                                            downturn
Our view: Revenues from new project openings




                                                                                           US$ mn
                                                                                                     9500
                                                                                                                                     13% decline in                      13% decline
will slow in H2 ’11 – H1 ‘12, due to a lack of new                                                   9000                            raw materials,                      in raw
                                                                                                                                     Fx                                  materials, Fx
contracts signed during H1 ’09. However,                                                             8500

consensus underestimates the cyclicality of                                                          8000

industrial gas companies. This cyclicality will lead                                                 7500

to revenue upside from a return of “lost” revenues                                                   7000

during the economic recovery.
                                                                                                             es




                                                                                                                                                                                         es
                                                                                                                             es




                                                                                                                                                           es
                                                                                                                              h




                                                                                                                                                                                          h
                                                                                                                            es




                                                                                                                                                                          s


                                                                                                                                                                                        es
                                                                                                                                                                       ct




                                                                                                                                                                                       ug
                                                                                                                           ug
                                                                                                           nu




                                                                                                                                                                                      nu
                                                                                                                          nu




                                                                                                                                                         nu
                                                                                                                          nu




                                                                                                                                                                                      nu
                                                                                                                                                                     ra




                                                                                                                                                                                     ro
                                                                                                                         ro
                                                                                                         ve




                                                                                                                                                                                    ve
                                                                                                                        ve




                                                                                                                        ve




                                                                                                                                                       ve




                                                                                                                                                                                    ve
                                                                                                                                                                  nt




                                                                                                                                                                                   th
                                                                                                                       th




                                                                                                                                                                co
                                                                                                       re




                                                                                                                                                                                 re
                                                                                                                     re




                                                                                                                                                     re
                                                                                                                     re




                                                                                                                                                                                 re


                                                                                                                                                                                ss
                                                                                                                    ss




                                                                                                                                                           ew
                                                                                                     08




                                                                                                                                                                              pa



                                                                                                                                                                              09
                                                                                                                  pa



                                                                                                                  09




                                                                                                                                                08
                                                                                                               st




                                                                                                                                                                          st
Where we could be wrong: Economic recovery is                                                                Lo




                                                                                                                                                                        Lo
                                                                                                                                                          N




                                                                                                                                                                                    M
                                                                                                                        M
                                                                                                                        R




                                                                                                                                                                                   R
                                                                                                                    +




                                                                                                                                                                                +
muted compared to our expectations..                                                                               Fx




                                                                                                                                                                              Fx
                                                       Source: Company data, Morgan Stanley Research. E = Morgan Stanley Research estimates.

2. Will the downturn in the refining industry          Aside from a large opportunity in Brazil, expect few H2 projects
result in lower hydrogen growth in the future?
                                                                                       900
                                                          New Hydrogen Revenue ($mm)




Market’s view: Growth in the US hydrogen                                               800
market beyond projects already announced is                                            700
unlikely in the next 5 years. Emerging market                                                                                               Large Brazilian facility (potential
                                                                                       600                                                  JV); could open earlier (i.e. in
growth is likely.                                                                                                                           Bull Case)
                                                                                       500
Our view: Asian growth beyond one or two new                                           400
plants in India appears unlikely in next 5 years.                                      300
However, we expect an additional $1.7bn of                                             200
hydrogen demand from Brazil in the next 7 years.                                       100

Where we could be wrong: More existing refiners                                        -
could choose to outsource hydrogen, vs. produce                                                             2010e 2011e 2012e 2013e 2014e 2015e 2016e 2017e
internally. This would be upside to our forecast.      Source: Company data, Morgan Stanley Research. E = Morgan Stanley Research estimates.



3. Will APD destroy value by buying ARG?               Airgas deal should be accretive if the terms are right
Market’s view: Yes, it is a bad deal (APD down            $10.00                                              Pro-forma ARG Impact
8% day of announcement, and 3 sell-side firms                                                                 Base Case APD EPS Est.
downgraded and/or cut price targets).                             $8.00

Our view: We believe the deal will go through at a                $6.00
slightly higher price (~$65), and that APD’s
                                                                  $4.00
$250mn synergy target is conservative. A
debt-financed deal should be accretive and has a                  $2.00
good chance of adding $0.75-1.00 to EPS.
                                                                  $0.00
Where we could be wrong: ARG management
are unwilling to sell and APD are forced to pay           ($2.00)                                           2010e           2011e          2012e                 2013e                  2014e         2015e
substantially more, issue equity, or walk away.
                                                       Source: Morgan Stanley Research, FactSet, Datastream. E = Morgan Stanley Research estimates




                                                                                                                                                                                                              3
                                                                    MORGAN                        STANLEY            RESEARCH

                                                                    February 16, 2010
                                                                    Air Products and Chemicals Inc.




Air Products: Top Pick in Attractive Industrial Gas Segment
Positive View of the Industrial Gas Segment                         an ARG acquisition in our Base Case estimates. All
We believe the industrial gas segment is more cyclical              transaction-related estimates should be considered in the
than most investors realize and that the sector will enjoy top      context of our Base Case views.
line recovery considerably higher than the market anticipates
over the coming 3–4 years. We anticipate healthy (but               Under the Airgas acquisition scenario, assuming $250 million
declining) underlying growth from new tonnage contracts being       of synergies, APD trades on a proforma 2013e P/E and
supplemented by a flowback of more sales “lost” in 2009 than        EV/EBITDA multiple of 9.1x and 6.6x, 45% and 19% discounts
the market realizes. See our industry report, “Industrial Gases:    to historical NTM average multiples. Assuming Air Products
Defensive, Yes, but Also a Surprising Recovery Play”,               doesn’t overpay for Airgas, we view valuation as highly
published today.                                                    compelling (see page 10).

                                                                    Exhibit 1
Air Products Is Our Preferred Pick
                                                                    APD Is More Cyclical Than Investors Appreciate
We are initiating coverage of Air Products with an                  There should be greater earnings upside during an
Overweight rating and price target of $91.                          economic recovery
•    Earnings upside. While we believe there is upside to                      11500           Consensus View                                             Morgan Stanley View

consensus revenue and earnings forecasts at both major US                      11000                                     $810m of new
                                                                                                                         contracts added                            16% decline in
industrial gas companies, Air Products and Praxair, we see                     10500                                                                                revenues due to
                                                                                                       8% decline in revenues                                       economic
greater upside to consensus forecasts for Air Products. The                    10000                   due to economic                                              downturn
                                                                                                       downturn
market has correctly appreciated the slowing number of new
                                                                      US$ mn




                                                                                9500
                                                                                                                13% decline in
contracts that both companies will commercialize during the                     9000                            raw materials,
                                                                                                                                                    13% decline
                                                                                                                                                    in raw
                                                                                                                Fx
next two years; however, we believe consensus forecasts do                      8500
                                                                                                                                                    materials, Fx

not fully appreciate the cyclicality of the Industrial Gas                      8000
companies and the magnitude of the revenue and profit upside                    7500
driven by a cyclical recovery and a reloading of assets.                        7000


•




                                                                                                                                                                    es
                                                                                        es




                                                                                                        es




                                                                                                                                      es
                                                                                                         h




                                                                                                                                                                     h
                                                                                                       es




                                                                                                                                                     s


                                                                                                                                                                   es
                                                                                                                                                  ct




                                                                                                                                                                  ug
                                                                                                      ug




     Excessive sell-off. We believe the recent sell-off following




                                                                                                                                                                 nu
                                                                                      nu




                                                                                                     nu




                                                                                                                                    nu
                                                                                                     nu




                                                                                                                                                                 nu
                                                                                                                                                ra




                                                                                                                                                                ro
                                                                                                    ro




                                                                                                                                                               ve
                                                                                    ve




                                                                                                                                  ve




                                                                                                                                                               ve
                                                                                                   ve




                                                                                                   ve




                                                                                                                                             nt




                                                                                                                                                              th
                                                                                                  th




                                                                                                                                           co
                                                                                  re




                                                                                                                                                            re
                                                                                                re




                                                                                                                                re
                                                                                                re




                                                                                                                                                            re


                                                                                                                                                           ss
                                                                                               ss




the proposed acquisition of Airgas has been excessive and
                                                                                                                                      ew




                                                                                                                                                         09
                                                                                08




                                                                                                                                                         pa
                                                                                             pa



                                                                                             09




                                                                                                                           08
                                                                                          st




                                                                                                                                                     st
                                                                                        Lo




                                                                                                                                                   Lo
                                                                                                                                     N




                                                                                                                                                               M
                                                                                                   M
                                                                                                  R




                                                                                                                                                              R
while we believe that Air products is likely to have to raise its
                                                                                               +




                                                                                                                                                           +
                                                                                             Fx




                                                                                                                                                         Fx
offer, we view the current share price as an excellent entry        Source: Morgan Stanley Research, Company Data
point for longer term investors.
                                                                    Air Products has slightly better end market exposure in
We see 2–5% upside to consensus revenue forecasts…                  the current environment. We see three key drivers of growth
Air Products’ volumes probably declined by 16% in 2009              over the next 3–5 years — emerging market exposure and
versus the 8% expected by consensus. This higher degree of          exposure to electronics and hydrogen. In our view, Air
cyclicality led to a loss of revenues equal to ~$1.6 billion, and   Products has greater exposure to two of these. While Praxair
will thus lead to a greater than expected recovery from the         has a superior emerging markets exposure, Air Products is the
recession. As a result, our revenue and EPS forecasts ~2–5%         global leader in industrial gases sold to the electronics industry
and 2% above consensus expectations, respectively (see              and the hydrogen industry. We expect Brazilian hydrogen to
Exhibit 16), under our base case scenario.                          help grow Air Products’ hydrogen revenues by 7–11% (CAGR)
                                                                    until 2017.
APD is trading on a 2011e P/E and EV/EBITDA multiple of
12.2x and 6.8x, a 27% and 18% discount to its historical NTM        Medium-term margin expansion plans likely to close the
P/E and EV/EBITDA average.                                          RNOA gap on Praxair. Air Products has ambitious margin
                                                                    expansion plans in its merchant and electronics division.
…and potentially more under our Airgas acquisition                  Management aim to raise operating margins within its
scenario. Assuming Air Products’ proposed acquisition of            merchant business (42% of revenues) from 18.3% to 20% by
Airgas takes place at $65/share, we see an additional 11%           2012 and in its electronics and performance systems division
upside to 2012 EPS – note we include no value/earnings from         (19% of revenues) from 11.1% in 2008 to 15% by 2011.



                                                                                                                                                                                      4
                                                                                 MORGAN         STANLEY            RESEARCH

                                                                                 February 16, 2010
                                                                                 Air Products and Chemicals Inc.




Assuming Air Products achieve such targets, and we believe                       Near-term investor focus will be on the proposed Airgas
they look relatively achievable, the company will generate a                     acquisition. In the near term the market is likely to focus on
superior return on net operating assets in 2012 compared to                      the proposed hostile acquisition of Airgas, proposed by Air
Praxair, which has delivered a superior return for the past 10                   Products on February 5. Since the announcement of the
years.                                                                           proposed $7 billion acquisition, Air Products has declined by
                                                                                 11% (roughly $1.6 billion in terms of market capitalization) and
Exhibit 2                                                                        underperformed Praxair by ~13%.
Likely Hydrogen Expansions
Refinery                            Location      Onstream Revenue opportunity   In our view, the transaction makes strategic sense and it is the
Marathon                            Garyville      Dec '09                120    right time for Air Products to make such a transaction. The
Exxon Mobil                    Baton Rouge          Apr-10                120    financing costs are currently attractive and at the current
Exxon Mobil                         Baytown         Apr-10                 50    proposed price, the transaction will be highly accretive to
Total                            Port Arthur         Jul-10                50    consensus forecasts. Synergies of $250m per annum have an
Mark West                Corpus Christi, Tx         Apr-10                 30
                                                                                 NPV of $4.3bn ($20/ share) and we view managements
Exxon Mobile                      Rotterdam           2012                120
                                                                                 synergy target as achievable. We expect Air Products will
Shell                             Rotterdam           2012                120
                                                                                 need to increase its offer, but even at $65/share, an 8%
Marathon                              Detroit         2012                 50
                                                                                 premium to the original offer, the transaction should still be
Monsanto                           Lousiana           2012                120
                                                                                 highly accretive.
Petrobras                         Comperj 1           2014                170
Petrobras                         Comperj 2           2015                170
Petrobras                             Renest          2015                340
Petrobras                 Premium 1 and 2             2017               1000
Source: Company data, Morgan Stanley Research estimates




                                                                                                                                               5
                                                                                     MORGAN         STANLEY            RESEARCH

                                                                                     February 16, 2010
                                                                                     Air Products and Chemicals Inc.




Airgas Deal Makes Sense (at the Right Price); Not a Strategic U-Turn
On February 5, Air Products announced that it intends to                              Why the transaction makes some strategic sense
acquire Airgas for $7bn ($5.1bn equity purchase plus $1.9bn                           Air Products has virtually no US presence in the packaged
of assumed debt), which translates to $60 / share in cash.                            and cylinder gas business, a market that accounts for 33% of
Such a value implies a 38% premium to Airgas’ closing price                           Praxair’s revenues, on our estimates. The packaged gas
on February 4 and implies an EV/EBITDA multiple of 10.5x.                             business model is very different to that of a large tonnage or
                                                                                      merchant business representing more of a logistics and rental
This may, at first, appear somewhat of a strategic U-turn. Air                        business as opposed to an engineering and production
Products divested its packaged gas business to Airgas in                              business. Unlike the consolidated tonnage and merchant
2002 when management decided to exit this area of the US                              businesses, where there are essentially four global players,
Industrial Gases market. The deal may also appear                                     there are >1000 regional gas distributors in the US. The US
expensive, based on the headline EV/EBITDA multiple.                                  market differs greatly from the European market, which is
However, following an in depth analysis of the transaction, we                        highly consolidated in a fashion similar to the merchant and
believe the transaction makes strategic sense for Air Products.                       tonnage markets. Air Products has a strong business in the
While we expect Air Products to pay slightly more for Airgas                          European packaged gas market.
(perhaps $65–70/ share or $7.3–7.8bn in total), we believe
that even at this valuation the deal makes financial sense,                           Airgas has excelled during the past 10 years, producing 11%
given the level of expected synergies, which we believe are                           revenue growth and 17% EBITDA growth principally by
achievable. On our estimates, the transaction, assuming it                            acquiring smaller regional cylinder and packaged gas
occurs at $65 / share will likely be 5% and 11% accretive to                          suppliers and consolidating them into their own operations.
our 2012 and 2013 EPS forecasts for Air Products. Assuming                            Given the customer focused and service nature of the
the deal is financed through debt only, the deal will likely prove                    business, Airgas has typically left the management teams of
to be 8% accretive to free cash flow in 2012 (excluding                               the acquired businesses in place and gained synergies and
proceeds from divestment of liquid bulk assets).                                      cost advantages from centralizing the purchasing of the
                                                                                      liquefied gases, the key cost of goods.

Exhibit 3
Baseline Assumptions and EPS Accretion Sensitivity Analysis: +$0.78 Year-3 EPS
   EPS Accretion (Dilution)                                  Airgas Share Price                                              Key Assumptions
                    $0.78                  $60             $65         $70          $75          $80
                      -                   0.15            0.09        0.03        (0.03)       (0.09)   ARG Share Price: We believe much of the ARG float is now
                      150                 0.57            0.51        0.45         0.39         0.33    held by merger arbitrage funds who have a cost basis ~$60-
      Synergies




                      200                 0.71            0.65        0.59         0.53         0.47    61. We believe a cash offer of $65 would offer a satisfactory
      ($mm)




                                                                                                        return for these investors, given that APD is likely the sole
       Total




                      250                 0.85            0.78        0.73         0.67         0.60
                                                                                                        bidder and that ARG cannot credibly commit to the type of
                      300                 0.99            0.93        0.87         0.81         0.74    margin improvement that APD is promising.

                             60%         (0.00)           (0.10)     (0.19)       (0.28)       (0.37)
                             75%          0.28             0.20       0.12         0.03        (0.05)   Total Synergies: Our baseline uses APD management's
            Financing




                                                                                                        $250mn assumption, which is equivalent to ~6% of ARG
                             85%
            % Debt




                                          0.50             0.42       0.34         0.27         0.19
                                                                                                        revenues. However, we note that this number does not
                             90%          0.61             0.54       0.46         0.39         0.32    include anticipated savings down the road as vendor
                            100%          0.85             0.78       0.73         0.67         0.60    contracts with Praxair and Linde expire (and would be
                                                                                                        replaced with spare APD capacity). Also, management's
                            5.00%         0.90            0.84        0.78        0.72          0.67    accretion analysis appears to assume zero revenue growth.
            Interest Rate
            on New Debt




                            5.25%         0.85            0.78        0.73        0.67          0.60
                                                                                                        Financing: Our baseline assumes 100% debt at a 5.25%
                            5.50%         0.80            0.74        0.67        0.61          0.54    interest rate. We believe this is achievable with no rating
                            5.75%         0.75            0.69        0.62        0.55          0.48    downgrade up to a $65/share price, perhaps up to $70. This
                            6.00%         0.71            0.64        0.57        0.49          0.42    is partially because APD will divest some assets worth $500-
                                                                                                        700mn, which could be use to pay down debt immediately.
                                                                                                        Over $70, APD would likely need to issue some equity in
                                                                                                        order to maintain their ratings. This makes the deal much less
                                                                                                        attractive.

Source: Morgan Stanley Research estimates, Company data




                                                                                                                                                                    6
                                                                    MORGAN                                          STANLEY                                       RESEARCH

                                                                    February 16, 2010
                                                                    Air Products and Chemicals Inc.




However, there are clearly operational synergies in maintaining     Exhibit 4

a US packaged/ cylinder business alongside a tonnage/               ARG has traded at a EV/EBITDA discount…
                                                                                         12x
merchant business. These synergies are, in part
demonstrated by the higher margins displayed by Praxair                                  10x
compared to Airgas and (to a much lesser degree) Air Products.




                                                                       EV / NTM EBITDA
Approximately 40% of Airgas’s liquefied gas requirements are                              8x

produced by themselves, the remaining 60% are purchased via
                                                                                          6x
contract from third parties. Praxair produce 100% of the
liquefied gas requirements themselves. We understand that                                 4x
approximately 40% of Airgas’s liquefied gas requirements are
                                                                                          2x
supplied from either Praxair or Linde and represent potential                                                                           Airgas                               Industrial Gases Subsector
savings in the future, since these could be taken from Air                                0x
Products own production capability.




                                                                                                3/21/2003

                                                                                                              9/21/2003

                                                                                                                           3/21/2004

                                                                                                                                        9/21/2004

                                                                                                                                                    3/21/2005

                                                                                                                                                                 9/21/2005

                                                                                                                                                                              3/21/2006

                                                                                                                                                                                           9/21/2006

                                                                                                                                                                                                       3/21/2007

                                                                                                                                                                                                                   9/21/2007

                                                                                                                                                                                                                               3/21/2008

                                                                                                                                                                                                                                           9/21/2008

                                                                                                                                                                                                                                                       3/21/2009

                                                                                                                                                                                                                                                                    9/21/2009
Does the transaction represent a strategic U-turn?
In February 2002, Airgas acquired the majority of Air Products’     Source: Morgan Stanley Research, Datastream

US packaged gas business for approximately $236m in cash.
The transaction included approximately 100 facilities in 30         Offered price appears high but will generate value for Air
states associated with the filling and distribution of cylinders,   Products assuming synergies are realized
liquid dewars, tube trailers, and other containers of Industrial    The offer price of $60/ share represents a 38% premium to the
Gases and non-electronic specialty gases, and the retail selling    unaffected price and implies an EV/Sales and EV/EBITDA ratio
of welding hardgoods, including customer service centers,           of 1.7x and 9.6x, based on consensus 2010 forecasts. Such a
warehouses and other related assets. In 2001, these facilities      valuation represents a 50% and 31% premium to the Airgas’
generated revenues of $223m, therefore Airgas paid ~1x              10-year NTM average EV/Sales and EV/EBITDA ratios of
EV/Sales for the acquisition. Having exited the US packaged         1.13x and 7.3x respectively (see Exhibit 4 and 5). We suspect
gas business, re-entering the market does, at first appearance      that Airgas and its investors will demand a higher price and it
appear to be a strategic U-turn by Air Products.                    would appear from Air Products press release, they are
                                                                    prepared to pay more, assuming Airgas an demonstrate the
However, in 2002, Air Products was focusing on growing its          additional value. We assume that Air Products will have to pay
hydrogen operations in the US, installing a new SAP system          $65/ share, or $7.3bn, which would value Airgas on an
and trying to fix its legacy chemicals business. In addition, Air   EV/Sales and EV/EBITDA ratio of 1.8x and 10.2x, a 60% and
Products was trying to improve the operating returns in its         40% premium to Airgas’s historical average.
healthcare business, which sold packaged gases to homecare          Exhibit 5
customers. The packaged/ cylinder gas segment of the market         ARG has traded at a EV/Sales discount…
                                                                                         2.5x
was clearly going to enter a phase of consolidation and it would
have been unlikely that Air Products would have been able to
                                                                                         2.0x
devote the attention and capital required to such a business.
                                                                       EV / NTM EBITDA




Therefore the sale of these assets made sense at this point in
                                                                                         1.5x
time.

                                                                                         1.0x
Since 2002, Airgas has acquired assets from Linde, Air Liquide
and BOC, to further consolidate its market position. It is highly
                                                                                         0.5x
unlikely that Air products would have been able to make these                                                                           Airgas                               Industrial Gases Subsector
acquisitions. Therefore, the Airgas assets Air Products would
                                                                                         0.0x
like to acquire today, are very different to the assets they sold
                                                                                                  2/21/2003

                                                                                                               8/21/2003

                                                                                                                            2/21/2004

                                                                                                                                        8/21/2004

                                                                                                                                                     2/21/2005

                                                                                                                                                                 8/21/2005

                                                                                                                                                                               2/21/2006

                                                                                                                                                                                           8/21/2006

                                                                                                                                                                                                       2/21/2007

                                                                                                                                                                                                                   8/21/2007

                                                                                                                                                                                                                               2/21/2008

                                                                                                                                                                                                                                           8/21/2008

                                                                                                                                                                                                                                                       2/21/2009

                                                                                                                                                                                                                                                                   8/21/2009




eight to Airgas years ago.

                                                                    Source: Morgan Stanley Research, Datastream




                                                                                                                                                                                                                                                                                7
                                                                     MORGAN           STANLEY            RESEARCH

                                                                     February 16, 2010
                                                                     Air Products and Chemicals Inc.




However, Airgas has always had lower margins compared to             Exhibit 6

its Industrial Gas peers. Airgas’ operating margin and EBITDA        APD Financials: Base-Case and Pro-forma for ARG
                                                                                                        2010e         2011e       2012e    2013e
margin has averaged 10.4% and 15.8% respectively for the
last five years. Praxair’s PDI has approximately 470 stores,         APD Base Case Revenue              9,172        10,128      11,234   12,018
cylinder-filling plants, warehouses and independent distributor      Growth                              11%           10%         11%        7%

channels for delivering welding, cutting, specialty and medical      APD Base Case EBITDA               2,501         2,794       3,061    3,272
gases in cylinders, small cryogenic containers and mini-bulk,        Margin                              27%           28%         27%      27%
                                                                     Growth                              17%           12%         10%        7%
beverage carbonation services and dry ice, technical expertise
and hardgoods. PDI's sales account for 14% of Praxair's              APD Base Case EPS                  $4.99         $5.60       $6.27    $6.75
global total, and 26% of Praxair's total sales in North America.     Growth                              23%           12%         12%       8%

Praxair’s PDI business has an operating margin of 16%. While
                                                                     Incremental ARG Revenue                 -        3,971       4,170    4,378
Praxair are highly driven by returns, as opposed to market           Incremental ARG EBITDA                  -          528         852    1,019
share and share of voice and this is likely one factor leading to     Margin                                           13%         20%      23%
                                                                     Incremental ARG EPS                $0.00        ($0.58)      $0.32    $0.78
the superior margins at Praxair.
                                                                     Pro-forma Revenue                  9,172        14,099      15,403   16,396
Air Products believe they can cut costs and create synergies         Growth                              11%           54%           9%       6%

totaling $250m p/a by 2012. Such costs represent 8% of               Pro-forma EBITDA                   2,501         3,322       3,913    4,291
Airgas’ operating expenses and 6% of revenues. In terms of           Margin                              27%           24%         25%      26%
                                                                     Growth                              17%           33%         18%      10%
precedent Industrial Gas acquisitions, when Linde acquired
BOC, they targeted synergies of €250m, which represented             Pro-forma EPS                      $4.99         $5.01       $6.59    $7.53
~4% of revenues. Air Products believe that the majority of           Growth                              23%            0%         32%      14%
                                                                     Source: Morgan Stanley Research, Company data
these synergies will come from centralizing administrative
functions and intend to keep Airgas’ sales force in place. Air
                                                                     Credit rating likely to remain within investment grade
products recently launched an SAP system and such a system
                                                                     without raising equity
placed within Air products will lead to significant cost savings.
                                                                     Air Products currently has a credit rating of A- with a negative
Airgas’ back office ordering and accounts system is >10 years
                                                                     watch. Following the transaction as currently proposed ($65/
old and conducted from >100 sites (versus Air Products with 3
                                                                     share), we expect Air Products’ net debt/ EBITDA ratio to rise
sites globally).
                                                                     to 3.6x from 1.9x currently. In our view, such a downgrade will
                                                                     still warrant an investment grade rating, perhaps BBB. Even at
In our view, one of the key reasons for Airgas’ lower margins is
                                                                     $70/ share, whereby Air Products’ net debt/ EBITDA would
the source of liquefied gas that is used within Airgas’ cylinders.
                                                                     reach 3.7x, we still believe the company could remain
Airgas purchase 60% of their liquefied gases from Praxair, Air
                                                                     investment grade without the need for additional equity. At
Liquide and Air Products. Air Products supply approximately
                                                                     >$70/ share, the investment grade nature of Air Products
one third of this requirement and generate revenues of $350m,
                                                                     becomes more questionable. Management wish to return to an
likely at a margin of 10–20%. An integrated producer is likely to
                                                                     A rating within four years of the acquisition, so we would
generate an EBITDA margin that is ~340 basis points superior
                                                                     assume that an acquisition price greater than $70 would
to Airgas’ margin through internal production. Clearly Airgas is
                                                                     require an equity issuance – this would make the economics of
likely to have long term supply contracts with Praxair and Air
                                                                     the deal much less desirable (see Exhibit 3).
Liquide that will require some time to renegotiate and we
understand that Air Products have assumed only a small               Exhibit 7
proportion of these savings within their forecast synergies.         Proforma Net Debt/EBITDA (Year 1), Ex. Asset Sales
such synergies within its target of $250m. Therefore this would
represent some very real upside to forecasts, assuming Air                                                       Airgas Share Price
                                                                                       3.6x        $60.00         $65.00       $70.00     $80.00
Products achieves its original synergy target.
                                                                                       60%            2.6x           2.7x          2.7x      2.9x
                                                                                       75%            2.9x           3.0x          3.1x      3.3x
                                                                        Financing




Deal is highly likely to be accretive to earnings                                      85%            3.1x           3.2x          3.3x      3.5x
                                                                        % Debt




We have constructed a pro forma P&L based on consensus                                 90%            3.2x           3.3x          3.4x      3.7x
                                                                                      100%            3.4x           3.6x          3.7x      3.9x
Airgas forecasts (see Exhibit 6). Our analysis suggests that
                                                                     Source: Morgan Stanley Research
when financed under debt the deal is likely to be highly
accretive to Air Products’ earnings – our best estimate is $0.78
in incremental GAAP EPS (cash EPS would be higher).



                                                                                                                                               8
                                                                       MORGAN         STANLEY            RESEARCH

                                                                       February 16, 2010
                                                                       Air Products and Chemicals Inc.




What is the likely process from here? There is the                     conducted prior to Sept 19, 2010 (13 months after the previous
potential for a prolonged battle between management                    AGM). Since the announcement of Air Products’ proposed
teams                                                                  acquisition, we note that >50% of the company’s market
Airgas appears reasonably well-defended against a hostile              capitalization has traded on the stock exchange. It is therefore
takeover and if Air Products cannot convince the Airgas board          likely that a significant proportion of shares are now owned by
that their offer is reasonable, the acquisition may take a             merger/ arbitrage funds or funds who have a vested interest in
considerable length of time (~1 year). Airgas has a number of          the acquisition taking place (at the right price). These
defense mechanisms in place to prevent a hostile takeover.             shareholders will likely direct their votes in favor of an
                                                                       acquisition, assuming Air Products is offering enough to
Airgas has a poison pill with a 15% triggering threshold. This         persuade them.
means that Air Products cannot effectively acquire shares
above that threshold without Airgas's board approving the              There are two other weaknesses within Airgas’s defenses that
purchase or redeeming the poison pill. Airgas also has a fair          Air Products is likely to attack. Airgas’s bylaws allow a vote of
price provision in its certificate of incorporation and the            67% of its outstanding shares to remove Airgas's directors
company has not opted out of Delaware's business                       without cause and Airgas's bylaws also allow shareholders
combination statute. These effectively require that Air Products       holding 33% of the outstanding shares to call a special meeting
obtain Airgas's board approval under these provisions as well          (although this can be logistically difficult). Before removing
before acquiring the company                                           directors without cause, we would expect Air products to run a
                                                                       proxy contest first and elect three friendly directors – likely in
On Feb 9, the Airgas board rejected Air Products’ offer and as         August 2010. The second weakness is quite important for Air
a result, Air Products will now be required to increase its offer to   Products. Air Products only needs 33% of the Airgas
secure a board recommendation for the offer, or be required to         shareholders to call a special meeting to amend Airgas's
run a proxy contest to remove and replace Airgas's board.              bylaws to significantly restrict Airgas's ability to take defensive
Airgas, though, has a staggered board with only roughly                measures.
one-third of the board up for election in any given year. This
means that only three of the nine Airgas directors will be up for
election this year at the annual meeting, which must be




                                                                                                                                       9
                                                                                                                                                                                                                             MORGAN                                    STANLEY                                         RESEARCH

                                                                                                                                                                                                                             February 16, 2010
                                                                                                                                                                                                                             Air Products and Chemicals Inc.




Growth, Recovery, and Option Value Drive Superior Valuation
The recent sell-off of APD shares as a result of management’s                                                                                                                                                                Exhibit 9

hostile bid for Airgas has created an ideal buying opportunity                                                                                                                                                               APD also looks cheap against its peer group
                                                                                                                                                                                                                                                                                                                                                                                                     Avg. Premium
for investors, in our view. At the current $69 price, APD shares                                                                                                                                                             Price/Earnings                                                         2010e                          2011e                                 2012e                     Gases     Chemicals
look cheap on every metric we consider in this report – we                                                                                                                                                                     Air Products                                                          13.7                           12.2                                  10.9                        -12%        -14%
                                                                                                                                                                                                                               Praxair                                                               16.7                           14.9                                  13.1                          6%          5%
struggle to see a scenario, besides a double-dip recession,                                                                                                                                                                    Airgas*                                                               19.6                           17.0                                  14.4                         21%         21%
where APD underperforms its peers over the next 12 months.                                                                                                                                                                     Linde Group                                                           13.6                           11.5                                  10.4                        -16%        -17%
                                                                                                                                                                                                                               Air Liquide                                                           17.0                           14.1                                  12.7                          4%          3%
Our DCF/DDM models as well as historical valuation ranges                                                                                                                                                                      Yingde                                                                15.6                           12.6                                   NA                          -5%         -7%
(mid-cycle NTM PE, EV/sales) drive our $91 year-end 2010                                                                                                                                                                     Industrial Gas Avg.                                                          16.0                          13.7                              12.3
price target, a 34% premium to the current price. Relative                                                                                                                                                                   MSCI US Chemicals                                                            16.8                          13.5                                NA

valuation is also supportive: APD trades at a discount to peers                                                                                                                                                              “*”are FactSet Consensus; all others are Morgan Stanley Research estimates
                                                                                                                                                                                                                             Source: Morgan Stanley Research estimates, FactSet, Datastream
on NTM PE (14%) and EV/EBITDA (9%).
                                                                                                                                                                                                                             Exhibit 10
Exhibit 8
                                                                                                                                                                                                                             APD has historically traded inline on EV/EBITDA
APD trading at deep discount to sector, reflecting
unwarranted selloff after hostile bid for Airgas                                                                                                                                                                                                    12x


                       25x                                                                                                                                                                                                                          10x
                                                                                                                                                                                                                                  EV / NTM EBITDA


                                                                                                                                                                                                                                                     8x
                       20x
    NTM Consensus PE




                                                                                                                                                                                                                                                     6x
                       15x
                                                                                                                                                                                                                                                     4x

                       10x
                                                                                                                                                                                                                                                     2x
                                                                                                                                                                                                                                                                                              Air Products                                     Industrial Gases Subsector

                        5x                                                                                                                                                                                                                           0x
                                                                                                                                                                                                                                                          3/21/2003

                                                                                                                                                                                                                                                                      9/21/2003

                                                                                                                                                                                                                                                                                  3/21/2004

                                                                                                                                                                                                                                                                                              9/21/2004

                                                                                                                                                                                                                                                                                                           3/21/2005

                                                                                                                                                                                                                                                                                                                       9/21/2005

                                                                                                                                                                                                                                                                                                                                   3/21/2006

                                                                                                                                                                                                                                                                                                                                                 9/21/2006

                                                                                                                                                                                                                                                                                                                                                             3/21/2007

                                                                                                                                                                                                                                                                                                                                                                           9/21/2007

                                                                                                                                                                                                                                                                                                                                                                                       3/21/2008

                                                                                                                                                                                                                                                                                                                                                                                                     9/21/2008

                                                                                                                                                                                                                                                                                                                                                                                                                 3/21/2009

                                                                                                                                                                                                                                                                                                                                                                                                                             9/21/2009
                                                     Air Products                                                              MSCI Chemicals

                        0x
                             1/20/1995
                                         1/20/1996
                                                     1/20/1997
                                                                 1/20/1998
                                                                             1/20/1999
                                                                                         1/20/2000
                                                                                                     1/20/2001
                                                                                                                 1/20/2002
                                                                                                                             1/20/2003
                                                                                                                                         1/20/2004
                                                                                                                                                     1/20/2005
                                                                                                                                                                 1/20/2006
                                                                                                                                                                             1/20/2007
                                                                                                                                                                                         1/20/2008
                                                                                                                                                                                                     1/20/2009
                                                                                                                                                                                                                 1/20/2010




                                                                                                                                                                                                                             Source: Morgan Stanley Research, Datastream

                                                                                                                                                                                                                             On our estimates, APD trades on a 2010e and 2011e
Source: Morgan Stanley Research, Datastream
                                                                                                                                                                                                                             EV/EBITDA multiple of 7.7x and 7.0x. This represents a 10%
On our estimates, APD trades on a 2010e and 2011e P/E                                                                                                                                                                        and 9% discount to global peers. Historically, APD has traded
multiple of 13.7x and 12.2x, a 20% and 12% discount to the                                                                                                                                                                   on a NTM EV/EBITDA multiple of 14.0x (slightly above the peer
MSCI US Chemicals sector, respectively. The stock also                                                                                                                                                                       average). Our $91 year-end 2010 price target represents a
trades at a 14% discount to the other industrial gas stocks                                                                                                                                                                  2011 EV/EBITDA multiple of 8.5x – very conservative, in our
(10% excluding ARG, which is inflated by the takeover                                                                                                                                                                        view, given the current pipeline of growth projects and the
premium). APD is also trading 17% below its historical NTM                                                                                                                                                                   potential of the Airgas assets.
P/E average of 16.3x. Given the potential for above-trend
                                                                                                                                                                                                                             Exhibit 11
earnings growth beyond the next 12 months, we feel APD
                                                                                                                                                                                                                             APD cheapest on NTM EV/EBITDA
should trade at a healthy premium to its peers: On our $91
                                                                                                                                                                                                                                                                                                                                                                                                                                 Avg.
price target, would trade at a 2010 and 2011 P/E multiple of                                                                                                                                                                 EV/EBITDA                                                                            2010e                                  2011e                                     2012e                     Premium
18.2x and 16.2x, a 7% and 18% premium to the MSCI US                                                                                                                                                                           Air Products                                                                         7.7                                    7.0                                       6.7                         -5%
Chemicals sector                                                                                                                                                                                                               Praxair                                                                              9.4                                    8.4                                       7.9                         15%
                                                                                                                                                                                                                               Airgas*                                                                              9.1                                    8.2                                       7.5                         11%
                                                                                                                                                                                                                               Linde Group                                                                          7.1                                    5.9                                       5.3                        -19%
                                                                                                                                                                                                                               Air Liquide                                                                          8.5                                    7.3                                       6.4                         -2%
                                                                                                                                                                                                                               Yingde                                                                               9.1                                    6.8                                       NA                           0%
                                                                                                                                                                                                                             Industrial Gas Avg.                                                                        8.5                                    7.3                                     6.8
                                                                                                                                                                                                                             “*”are FactSet Consensus; all others are Morgan Stanley Research estimates
                                                                                                                                                                                                                             Source: Morgan Stanley Research, FactSet estimates




                                                                                                                                                                                                                                                                                                                                                                                                                                         10
                                                                                                    MORGAN         STANLEY            RESEARCH

                                                                                                    February 16, 2010
                                                                                                    Air Products and Chemicals Inc.




Air Products has a 2011e free cash flow yield of 3.2%, versus                                       •   EV/sales: $93: Using the 10-year historical EV/sales vs.
the MSCI Chemicals sector average of 4%. APD’s dividend                                             EBITDA margin regression for the Industrial Gases subsector,
yield of also has a 2010e dividend yield of 2.6%, which                                             we use our 2011e estimates to forecast a year-end 2010 value.
compares favorably to compared to the MSCI Chemicals
                                                                                                    •    Dividend discount: $78 Same cost of equity and long-term
average of 2%.
                                                                                                    growth assumptions as above, and assumes a 40.0% payout
The relationship between EV/ Sales and EBITDA margin for                                            ratio (100% for terminal value calculation).
the Chemicals sector is highly observable (see Exhibit 12). For
Air Products, it is important to note that the stock is currently                                   There are several key risks not reflected in our base case
trading significantly below the expected industry path (i.e. the                                    or bear-case models that could impact valuation for Air
current price is indicating that consensus EBITDA expectations                                      Products’ shares, including but not limited to:
are too high). Given our view that consensus estimates are                                          •    Lower pricing due to more competitive bidding
reasonable, we view this metric as supportive of a higher                                           environment. Some of our channel checks have indicated that
valuation for APD – our 2011e estimates suggest a fair value of                                     demand for new hydrogen facilities in emerging markets might
$93 based on this methodology.                                                                      not be as robust as industry management and investors
                                                                                                    believed. If that results in aggressive bidding by Air Products’
Exhibit 12
APD appears cheap on EV/Sales basis, especially                                                     competitors, industry returns on new projects could decline. Or,
considering margin upside                                                                           if one or several competitors sets “capex targets” irrespective
                 3.5x                                                                               of returns (as happened in the late 1990’s), industry profitability
                             y = 0.30e7.82x                                                         could suffer.
                 3.0x        R2 = 0.83
                             Regression based on 2000-2010
                                                                                                    •    Double-dip recession. Our economists’ assumptions
                 2.5x        consensus data for the five major                                      could prove too optimistic. Morgan Stanley economist Richard
                             Industrial Gas companies
  EV/NTM Sales




                                                                                                    Berner has identified housing and construction as a key risk to
                 2.0x
                                                                                                    his relatively optimistic US outlook, and if these metrics decline
                 1.5x                                                                               further, many of Air Products’ businesses would likely not
                                                                                                    achieve our base-case estimates. Further, our bear-case
                 1.0x                                                                               scenario still reflect global growth and inflation, albeit at a lower
                                 Praxair                    Air Products     Airgas
                                                                                                    rate, therefore any double-dip/deflationary risks would
                 0.5x
                                 Linde                      Air Liquide      MSCI Chemicals         represent further downside;
                 0.0x                                                                               •    Financial market volatility. Our valuation methodologies
                        0%          5%          10%          15%     20%     25%    30%       35%
                                                                                                    are largely based on long-run averages for valuation multiples
                                                         NTM EBITDA Margin
                                                                                                    and discount rates, and they may not reflect current market
Source: Morgan Stanley Research, Datastream
                                                                                                    conditions. The Morgan Stanley Credit Strategy team expects
Our $91 year-end 2010 price target is based on a blended                                            long-term interest rates in credit markets to rise in 2010, and
average of several valuation methodologies:                                                         this may have negative implications for equity valuation as well.

•    DCF: $101: Key drivers of the DCF valuation include an                                         Scenario Value Methodology and Probabilities
assumption that maintenance capital expenditures plateau at
6.4% of revenues, which is above the company’s current level                                        Our bull case valuation range of $113–133 is first based on the
of ~6%. This is based on our view that maintenance will rise as                                     same blended average valuation methodology as our price
the new plants opened over the last 10 years begin to age. Our                                      target, then a DCF value of the potential Airgas deal ($20) is
WACC assumption of 8.2% is based on a risk-free rate of 5.0%,                                       added as an additional upside scenario (i.e. the “Extreme Bull
market risk premium of 5.0%, five-year weekly beta of 1.0x and                                      Case”). Our bear case valuation range of $51–59 assumes a
the credit spreads on Air Products’ corporate bonds, currently                                      depressed 12x EPS multiple (i.e., two standard deviations
averaging 141bps above treasuries (reflecting the uncertainty                                       below average) in a disappointing economic environment, plus
around the Airgas bid) . Long-term growth is conservatively                                         negative value $(8) if Air Products management significantly
assumed at 3.0% beyond 2015.                                                                        overpays for the Airgas assets, and issues stock to do so (i.e.
                                                                                                    the “Extreme Bear Case”). See page 2 for a summary of the
•   Mid-cycle P/E: $91: Assumes 16.3x EPS (inline with the                                          fundamental drivers of our scenarios, and page 6 for more
10 year average) on our 2011e earnings estimate of $5.60.                                           detail on the Airgas bid.




                                                                                                                                                                     11
                                                                                                     MORGAN         STANLEY            RESEARCH

                                                                                                     February 16, 2010
                                                                                                     Air Products and Chemicals Inc.




Exhibit 13
North America Chemicals: Comparable Companies & Relative Valuation
All values are in Millions except per share data.
                                                    Current     Mkt.   '10 Net                          P/E                      EV / EBITDA                     EV / sales
Ticker       Company                                                              '10 EV
                                                      price     Cap       Debt             2009e       2010e    2011e    2009e      2010e    2011e    2009e       2010e     2011e

Diversified Chemicals
CBT^         Cabot Corp†                            $28.84     1,885      415      2,300     47.8        14.6       NA      8.7        6.0       NA        1.1        0.9       NA
CE^          Celanese Corp†                         $29.82     4,282    2,165      6,447     17.4        10.5      9.1      7.9        6.2      5.3        1.4        1.2      1.1
DD^          Du Pont (E I) De Nemours*              $32.28    29,172    5,238     34,410     15.7        14.0     11.4      8.3        7.2      6.3        1.2        1.3      1.2
DOW^         Dow Chemical*                          $27.79    31,784   17,072     48,856     46.8        17.2      9.8      9.4        6.8      5.4        1.1        0.9      0.8
EMN^         Eastman Chemical Co†*                  $57.99     4,205      819      5,025     16.0        13.1     11.4      6.4        5.9      5.2        1.0        0.9      0.9
HUN^         Huntsman Corp†                         $12.24     2,904    3,220      6,124    (13.9)       83.1     17.3     12.7        8.4      6.8        0.8        0.7      0.7
IFF^         Intl Flavors & Fragrances†*            $41.68     3,295      854      4,148     15.5        13.8     12.3      9.8        9.0      8.1        1.9        1.7      1.6
NLC^         Nalco Holding Co†                      $22.17     3,064    2,691      5,755     24.1        16.7     13.5      8.9        7.9      6.9        1.7        1.5      1.4
SOA^         Solutia Inc†                           $14.10     1,712    1,069      2,781     12.3        12.4     11.4      8.3        6.7      5.9        1.8        1.7      1.5
SXT^         Sensient Technologies Corp†            $25.58     1,252      362      1,613     13.3        12.5     11.1      8.3        7.6      7.0        1.4        1.3      1.2
WLK^         Westlake Chemical Corp†                $19.75     1,303      250      1,553     24.5        23.6     18.6      6.8        6.4      5.5        0.7        0.6      0.6
0
Total                                                         84,859   34,154    119,012
 Weighted Average                                              7,072    3,105     10,819     27.4        17.5     10.8      8.8        7.0      5.8        1.2        1.1      1.0
 Median                                                        2,984    1,069      5,025     16.0        14.0     11.4      8.3        6.8      6.1        1.2        1.2      1.1

Specialty Chemicals
ALB^         Albemarle Corp†                        $36.60     3,355      420      3,775     19.7        14.0     12.1     12.0         8.9     7.7        2.0        1.7      1.5
ARJ^         Arch Chemicals Inc†                    $29.27       732      226        958     15.3        14.6     12.8      7.3         6.6     6.3        0.7        0.6      0.6
ASH^         Ashland Inc†                           $44.06     3,439    1,123      4,562     13.6        11.7     10.5      5.8         5.0     4.2        0.3        0.6      0.5
CCMP^        Cabot Microelectronics Corp†           $35.98       848     (243)       605     42.0        18.2     17.0     11.5         6.2      NA        2.0        1.7      1.5
CYT^         Cytec Industries Inc†                  $39.93     1,967      456      2,423     30.3        18.0     14.6      8.7         6.8     5.8        1.0        0.9      0.8
DCI^         Donaldson Co Inc†                      $39.67     3,060      115      3,175     21.6        20.0     16.2     12.3        10.8      NA        1.8        1.7      1.5
ECL^         Ecolab Inc†*                           $41.79     9,927      673     10,601     21.0        18.7     16.4      9.9         9.1     8.0        1.9        1.7      1.6
FMC^         Fmc Corp†*                             $55.68     4,026      412      4,437     13.4        12.1     10.8      7.5         6.8     5.7        1.6        1.5      1.4
FUL^         Fuller (H. B.) Co†                     $20.57     1,002      114      1,116     13.9        12.7     12.2      7.2          NA      NA        0.9        0.9      0.8
GRA^         Grace (W R) & Co†                      $28.08     2,028       85      2,113     28.7        10.7     11.3       NA          NA      NA        0.6        0.6      0.7
GTI^         Graftech International Ltd†            $12.31     1,482     (153)     1,330     23.8        10.8      8.9     12.5         6.1     4.4        2.4        1.6      1.2
0
Total                                                         32,616    3,222     35,838
 Weighted Average                                              4,912      456      5,368     20.6        15.6     13.6      9.0        7.2      5.2        1.5        1.4      1.3
 Median                                                        1,998      171      2,268     21.3        14.3     12.5      9.9        6.8      6.1        1.7        1.5      1.3

Industrial Gases
APD^         Air Products & Chemicals Inc†*         $68.53    14,537    4,444     18,981     16.8        13.7     12.2      8.7        7.6      6.8        2.2        2.0      1.9
ARG^         Airgas Inc†*                           $61.81     5,110    1,630      6,740     22.1        20.4     17.6      9.9        9.3      8.4        1.7        1.7      1.5
PX^          Praxair Inc†*                          $76.93    23,603    5,566     29,169     19.3        16.9     15.1     10.6        9.6      8.8        3.2        2.8      2.6
0
Total                                                         43,249   11,640     54,890
 Weighted Average                                             18,371    4,724     23,095     18.8        16.2     14.4      9.9        8.9      8.1        2.7        2.4      2.2
 Median                                                       14,537    4,444     18,981     19.3        16.9     15.1      9.9        9.3      8.4        2.2        2.0      1.9

Coatings
PPG^         Ppg Industries Inc†*                   $60.36    10,079    2,208     12,287     20.5        15.6     13.6      8.6        7.3      6.4        1.1        1.0      0.9
VAL^         Valspar Corp†                          $26.66     2,650      630      3,280     14.7        13.1     11.7      8.2        7.4      6.5        1.2        1.1      1.0
0
Total                                                         12,730    2,838     15,568
 Weighted Average                                              8,533    1,880     10,412     19.3        15.0     13.2      8.6        7.3      6.5        1.1        1.0      0.9
 Median                                                        6,365    1,419      7,784     17.6        14.3     12.7      8.4        7.3      6.5        1.1        1.0      1.0


Universe Total                                       173,454              225,308
Universe Mean                                          5,981                8,047       20.7      17.5       13.1        9.2         7.5         6.5        1.4       1.3      1.2
Universe Weighted Average                             17,290               22,912       23.4      16.6       12.4        9.1         7.6         6.3        1.6       1.5      1.3
Universe Median                                        3,060                3,962       19.5      14.3       12.2        8.7         7.2         6.4        1.4       1.3      1.2
Source: Morgan Stanley Research and Factset Covered companies' earnings, EBITDA, and revenue estimates are Morgan Stanley estimates; all others are FactSet Consensus
OW = Overweight, EW = Equal-Weight, UW = Underweight
Non-covered company data sources from Factset
"†" The company is not covered by Morgan Stanley
"*" The company is a S&P 500 Index constituent
Source: Company data, FactSet, Morgan Stanley Research




                                                                                                                                                                               12
                                                                                                MORGAN          STANLEY           RESEARCH

                                                                                                February 16, 2010
                                                                                                Air Products and Chemicals Inc.




Exhibit 14
Global Industrial Gases Comps Sheet
                                                                       Price             Mkt.         '10 Net                               P/E                      EV / EBITDA
Ticker            Company                                                                                          '10 EV
                                                                      (USD)              Cap             Debt                     2009e    2010e    2011e    2009e      2010e    2011e

Global Industrial Gases
APD               Air Products                                        68.53          14,508            4,444       18,952           16.8     13.7     12.2      7.7        7.0      6.7
PX                Praxair                                             76.93          23,603            5,658       29,261           19.3     16.9     15.1     10.3        9.4      8.3
ARG               Airgas*                                             61.81           5,075            1,588        6,663           23.0     19.6     17.0      8.4        9.1      8.2
AIRP.PA           Air Liquide                                        108.76          28,426            9,273       37,699           19.3     17.0     14.1      9.8        8.7      7.5
LING.DE           Linde                                              111.22          18,918            8,359       27,278           22.9     17.1     13.6      8.6        7.5      6.4
2168.HK           Yingde Gases Group                                   1.04           1,884             (246)       1,637           20.9     15.8     12.8     15.6        9.3      7.0
0
Total                                                                                92,415           29,076     121,491
 Weighted Average                                                                    13,202            4,846      20,248            19.9     16.6     14.1        9.4      8.4      7.4
 Median                                                                              14,508            5,051      23,115            20.1     16.9     13.9        9.2      8.9      7.2

Source: Morgan Stanley Research Covered companies' earnings, EBITDA, and revenue estimates are Morgan Stanley estimates
“*” indicates company not covered by Morgan Stanley Research, estimates are FactSet Consensus
Source: Morgan Stanley Research




                                                                                                                                                             13
                                                                           MORGAN                              STANLEY                   RESEARCH

                                                                           February 16, 2010
                                                                           Air Products and Chemicals Inc.




Financials and Assumptions
2010 Guidance: Air Products has guided to achieving                        Exhibit 16

adjusted diluted EPS of $4.75–4.95, an EPS growth of 17–22%                Air Products: Revenue growth (97 – 15e)
over 2009 adjusted diluted EPS of $4.06. Air Products have                                        20%

not given revenue guidance, but have guided that 2010 capex                                       15%
will be $1.3–1.5bn. Air Products guidance is, in our view based
                                                                                                  10%
on conservative assumptions regarding the rate of economic
recovery. Air products expects Worldwide manufacturing




                                                                             Revenue growth (%)
                                                                                                   5%

growth to be up 1–2% in 2010, with US flat to up modestly, EU                                      0%
down 1% and Asia up 8–9%.




                                                                                                     97
                                                                                                          98
                                                                                                               99
                                                                                                                    00
                                                                                                                         01
                                                                                                                              02
                                                                                                                                    03
                                                                                                                                         04
                                                                                                                                              05
                                                                                                                                                   06
                                                                                                                                                        07
                                                                                                                                                             08
                                                                                                                                                                  09
                                                                                                                                                                       10
                                                                                                                                                                            11
                                                                                                                                                                                 12
                                                                                                                                                                                      13
                                                                                                                                                                                           14
                                                                                                                                                                                                15
                                                                                                  -5%




                                                                                                    19
                                                                                                         19
                                                                                                              19
                                                                                                                   20
                                                                                                                        20
                                                                                                                             20
                                                                                                                                  20
                                                                                                                                       20
                                                                                                                                            20
                                                                                                                                                 20
                                                                                                                                                      20
                                                                                                                                                           20
                                                                                                                                                                20
                                                                                                                                                                     20
                                                                                                                                                                          20
                                                                                                                                                                               20
                                                                                                                                                                                    20
                                                                                                                                                                                         20
                                                                                                                                                                                              20
2010 Consensus: Consensus expects 2010 revenues of                                                -10%

$9.18bn and 2010 EPS of $4.93, which resides in the middle of                                     -15%
management’s guidance range.
                                                                                                  -20%

Morgan Stanley Estimates: We forecast 2010 revenues of                                            -25%

$9.1bn and EPS of $5.05 which resides slightly above the top                                                                      Revenue growth (%)         Average ('97 - 09)

end of management’s guidance range. Our economic                           Source: Morgan Stanley Research estimates, Company data

assumptions, including global GDP growth of 4% in 2010 are
slightly more optimistic than management’s.                                Typically, for an air separation unit, $1 of CAPEX results in $0.5
                                                                           of revenues, when the plant has entered the commercial
Exhibit 15                                                                 operation stage. Typically, for a HyCO (hydrogen and carbon
APD Estimates vs. Consensus                                                monoxide) plant, $1 of CAPEX results in $1 of revenue,
                                            2010e      2011e      2012e    although at a significantly lower margin. On our estimates new
Morgan Stanley Est.                                                        revenues of approximately $810mn were delivered in 2009,
Revenue                                    9,172.1   10,127.9   11,233.6   associated with the $ 1.4bn of CAPEX spent during 2007 and
EBITDA                                     2,501.3    2,793.9    3,060.7   2008.
EPS                                          4.99       5.60       6.28

                                                                           Therefore volumes actually declined by $1.6bn in 2009, a 16%
Consensus
                                                                           drop on 2008 levels. Air Products in our view is far more
Revenue                                    9,178.5    9,977.4   10,720.6
EBITDA                                     2,361.8    2,640.8    2,815.2   cyclical than most would suspect. As a result, Air Products is
EPS                                          4.93       5.59       6.19    likely to benefit more from an economic recovery than
                                                                           consensus forecasts likely assume. We forecast 2011 and
∆ from Consensus                                                           2012 revenue growth of 11% in each year, implying 6% growth
Revenue                                       0%         2%          5%    above the 3–5% expected from new start ups. This translates
EBITDA                                        6%         6%          9%    into revenues of $9.2bn, $10.1bn and $11.2bn in 2010, 2011
EPS                                           1%         0%          1%    and 2012 as Air Products’ business returns to levels similar to
Source: Morgan Stanley Research, FactSet
                                                                           those witnessed in 2008. These additional revenues are
                                                                           broadly equal to those that we estimate Air Products lost
In 2009 Air Products reported volumes declined by just 8%,
                                                                           through the economic downturn.
forcing most investors to believe that Air Products is relatively
non cyclical and faired extremely well through the economic
                                                                           In addition to above average revenue growth for the next three
downturn. Consensus forecasts are therefore based on a
                                                                           years (see Exhibit 17), we expect significant margin expansion
belief that there is only limited upside from an economic
                                                                           with operating margins expanding from 14.4% (2009) to 17%
recovery and a reloading of Air Products assets. As a result,
                                                                           (2012). The key driver of this margin expansion is electronics
consensus forecasts assume revenue growth of just 8.7% and
                                                                           and performance systems where we expect margins to
7.4% in 2011 and 2012, implying 3% and 2% growth resulting
                                                                           increase from 6.4% to 14% (versus management target of
from an economic recovery, in addition to the growth from new
                                                                           15%). Prior to the economic downturn, operating margins in
start ups (3–5%).




                                                                                                                                                                                                     14
                                                                                       MORGAN                                    STANLEY            RESEARCH

                                                                                       February 16, 2010
                                                                                       Air Products and Chemicals Inc.




this division were 11.1%. Air Products also intends to expand                          Exhibit 17

its margins within the tonnage business to 20% (from 18.3% in                          Air Products: Operating margin (97 – 15e)
2009.                                                                                                              18.0%

                                                                                                                   17.0%

                                                                                                                   16.0%




                                                                                            Operating margin (%)
                                                                                                                   15.0%

                                                                                                                   14.0%

                                                                                                                   13.0%

                                                                                                                   12.0%

                                                                                                                   11.0%

                                                                                                                   10.0%




                                                                                                                         97
                                                                                                                         98
                                                                                                                         99
                                                                                                                         00
                                                                                                                         01
                                                                                                                         02
                                                                                                                         03
                                                                                                                         04
                                                                                                                         05
                                                                                                                         06
                                                                                                                         07
                                                                                                                         08
                                                                                                                         09
                                                                                                                         10
                                                                                                                         11
                                                                                                                         12
                                                                                                                         13
                                                                                                                         14
                                                                                                                         15
                                                                                                                      19
                                                                                                                      19
                                                                                                                      19
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                      20
                                                                                                                                             Operating margin (%)     Average ('97 - 09)

                                                                                       Source: Company data, Morgan Stanley Research estimates




Exhibit 18
Air Products: Dynamics of capital expenditure and sales
Air Products Capex / Sales Analysis                       2007       2008       2009                               2010e         2011e          2012e          2013e           2014e        2015e

 Adjusted Capex                                            (1,096)    (1,281)    (1,418)                             (1,400)       (1,520)         (1,362)          (1,621)       (1,733)     (1,068)

 Avg. Capex                                                (1,242)    (1,188)    (1,349)                             (1,409)       (1,460)         (1,441)          (1,491)       (1,677)     (1,401)

 Underlying growth / capex                                   92%        31%         60%                                    52%       69%              77%             53%            52%        56%
                                                                                                                    Estimated "missing sales"
     Expected volume from new CAPEX, Est.                               594         810                                 454          460             560              300            420        420
     Estimated growth (%) from new CAPEX                               6.5%        7.8%                               5.5%          5.0%            5.5%             2.7%           3.5%       3.3%
     Revenue from exisiting assets (Vol. + Price), Est.                 (228)     (1,643)                               282          542             546              485            449        359
     Estimated "organic" growth (%)                                    -2.5%     -15.8%                                3.4%         5.9%            5.4%             4.3%           3.7%       2.8%
   Total change in underlying sales (Vol. + Price)         1,138        366        (833)                                736        1,002           1,106              785            869        779
   Underlying sales growth                                 13.0%       4.0%       -8.0%                                8.9%        10.9%           10.9%             7.0%           7.2%       6.0%
   Currency and pass-through                                 175        823       (1,354)                               180           (46)            -                -              -          -
   Growth (%) from currency and pass-through                2.0%       9.0%      -13.0%                                2.2%        -0.5%            0.0%             0.0%           0.0%       0.0%
   Acquisitions & divestitures                                88         91          -                                   -            -               -                -              -          -
   Growth (%) from acquisitions                             1.0%       1.0%        0.0%                                0.0%         0.0%            0.0%             0.0%           0.0%       0.0%
 Total new revenues                                          395       1,266     (2,158)                                   916       956            1,106             785            869        779

 Revenues                                                                         8,256                               9,172       10,128          11,234            12,018        12,887     13,667
 Growth (%)                                                                                                           11.1%        10.4%           10.9%              7.0%          7.2%       6.0%
Source: Company data, Morgan Stanley Research estimates




                                                                                                                                                                                                 15
                                                                  MORGAN                      STANLEY                    RESEARCH

                                                                  February 16, 2010
                                                                  Air Products and Chemicals Inc.




Management Are Now More Focused on Returns Than in the 1990s
Industrial Gases represent 88% of Air Products’ 2009 revenues     Exhibit 19

with Performance materials representing ~6% of revenues and       Margin expansion will drive more medium-term
energy, equipment and other representing a further 6% of          RNOA expansion for Air Products versus Praxair
revenues. Air products revenues declined by 21% in 2009,                  22.0%



with volumes declining 9%, price increasing 1%, and energy
                                                                          20.0%
and raw material pass through declining by 7% and currency
having a 6% negative effect. Air Products remains the market              18.0%

leader in the hydrogen market and in the electronic market but
appears slightly less exposed to the emerging market growth               16.0%




                                                                   RONA
regions such as South America and China.
                                                                          14.0%




Shortly after becoming CFO in 2003, Paul Huck set a goal of               12.0%

reaching an ORONA of 12.5% by the end of 2007 from a 2004
level of 9.3%, principally by focusing on returns as opposed to           10.0%


growth. In aiming for such a target, Air Products likely turned
                                                                          8.0%
down numerous contracts that fell below their returns criteria,                   1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010e 2011e 2012e 2013e 2014e 2015e


which previously them may have been tempted in bidding for,                                                                   Praxair   Air Products



in order to achieve superior growth. During the past seven        Source: Company data, Morgan Stanley Research estimates

years, Air Products has disposed of a number of                   Exhibit 20
underperforming businesses including its US Healthcare            Air Products: Revenue by Geographic region
business (which services homecare rather than hospitals), its
packaged gas business to Air Products (in 2002) and various
                                                                                                                     Latin America
chemicals businesses. On our estimates Air Products                                                         Asia           2%

improved its return on net operating assets (RNOA) by 500                                                   16%

basis points from 10.1% in 2003 to 15.1% in 2007 and its return
on equity by 610 basis points from 14.4 in 2003 to 20.5% in
2007.                                                                                                                                                      North America
                                                                                                                                                                49%

The company now has a number of margin related targets
including growing its electronics operating margin to 15% by
                                                                                                   Europe
2011 (from 6.4% in 2009 and 11.1% in 2008) and growing                                              33%
merchant gases business to 20% by 2012 (from 18.3% in
2009). If Air Products are able to achieve these margins, we
would expect the RNOA to exceed that delivered by Praxair.
Under this scenario, group EBITDA margins expand from
                                                                  Source: Company data, Morgan Stanley Research
24.6% currently to 26% in 2011.




                                                                                                                                                                                       16
                                                                  MORGAN         STANLEY            RESEARCH

                                                                  February 16, 2010
                                                                  Air Products and Chemicals Inc.




Exhibit 21                                                        $800m of capex per annum, broadly in line with Air Products
Air Products: Revenues by division                                2010 company wide capex spend of $1.3–1.5bn.

                                  Energy and
                                equipment/ other                  Margins for the division improved by 200 basis points from
                                      6%
                                                                  13.5% to 15.5%. Excluding the natural gas pass-through effect,
              Electronics and
               performance                                        margins actually declined by 120 basis points from 16.7%
                 materials
                    19%                                           (2008 restated at 2009 natural gas prices) to 15.5%. As natural
                                                   Merchant
                                                                  gas prices increase modestly, we expect margins to decline
                                                    44%           slightly. Against this slight negative pressure, management
                                                                  are implementing cost control programs and have eliminated
                                                                  many cost items during the downturn. We expect these cost
                                                                  control measures to broadly offset the natural gas effect.

                          Tonnage                                 Merchant: Revenues from Air Products merchant business
                            31%
                                                                  accounted for 44% of revenues in 2008 and 42% of revenues
                                                                  in 2009. Revenues declined by 14% in 2009 (-9% volume, -9%
Source: Company data, Morgan Stanley Research                     currency, +4% price). This business typically refers to
                                                                  atmospheric gases being taken from a larger ASU and shipped
                                                                  in a tanker up to 250 km where it is pumped into a storage tank
Tonnage: Revenues from Air Products tonnage business              at the customer’s facility. In Europe, Air Products also has a
accounted for 34% of revenues in 2008 and 31% of revenues         cylinder/ packaged business, similar to the business they are
in 2009. This business represents Air Products business with      aiming to acquire from Airgas. Revenues from this business
its largest customers, requiring large quantities of gas with     have grown at 15% (CAGR) from 2006 to 2009 driven by 7%
contracts that last ~15 years. Air Products supplies these        volume growth, 3% price, 2% through acquisitions and 3%
customers from a plant constructed on the customer’s site, or     from currency. We forecast revenues of 5% (CAGR, 2009-15)
via a pipeline. Air Products owns 800 miles of pipelines in       driven by 3% volume and 2% price.
North America and Rotterdam. Revenues from this business
have grown at 27% (CAGR) from 2007 to 2008 and we forecast        Operating margins in this business have expanded from 17.3%
revenues of 15% (CAGR) between 2009 and 2015 with                 in 2006 to 18.8% in 2008 before declining to 18.3% in 2009.
hydrogen revenues growing at 9%.                                  Management’s aim is to achieve operating margins of 20% by
                                                                  2011.
Typically, $1 capex in an onsite air separation project (oxygen
or nitrogen) results in $0.5 of revenues at an 20-25% margin. A   Electronics and performance materials: Revenues from Air
HyCO (Hydrogen/ carbon monoxide) plant typically requires $1      Products electronic and performance systems division
of capex for $1 of revenues but at a lower margin (~10%) due      accounted for 21% of revenues in 2008 and 19% of revenues
to the natural gas pass through effect. Air Products is the       in 2009. Revenues declined by 28% in 2009 (-25% volume,
world’s leading supplier of hydrogen for the refining industry    -2% price, -2% currency and +1% from an acquisition).
with a ~40% market share. The company has an exclusive            Approximately two thirds of the revenues from this business
agreement with Technip, the leading refining engineering          were derived from electronics in 2008, while one third were
company. In 2008, Air Products generated revenues of $2.2bn       derived from performance materials.
in Hydrogen and we estimate that this declined to $1.4bn in
2008 representing 62% of revenues in 2008 and 54% of              Within the electronics division, approximately 25% is
revenues in 2009. During this downturn, volumes remained          essentially tonnage type contracts where Air Products is
constant, however the natural gas component of the revenue        supplying gas (such as nitrogen) on site to a large
stream declined significantly.                                    semiconductor manufacturer (e.g. Intel). While Air Products
                                                                  has not seen significant interest in new projects during the
We forecast revenue growth of 15% (CAGR) until 2015, which        downturn, revenues with a “take or pay” type structure were
approximately translates to a revenue gain of $500m per year.     largely unaffected by the economic downturn. Within the
Approximately 80% of capex is directed towards Air Products’      electronics division, this is likely to be the most capital-intensive
tonnage business and such a revenue gain will likely require      business. Approximately 17% of 2008 electronics revenues
                                                                  ($375mn) were derived from equipment sales. Air Products



                                                                                                                                   17
                                                                    MORGAN         STANLEY            RESEARCH

                                                                    February 16, 2010
                                                                    Air Products and Chemicals Inc.




designs and manufactures equipment to deliver hazardous             The Performance materials segment contains of the remains of
gases to the tool inside the Fab. This is a low capital-intensive   the chemicals business, most of which were divested during
business and during the downturn, while throughput declined         the late 1990’s. the three key products sold within this
by 60%, the unit remained profitable, given its high degree of      business unit includes polyurethane technologies (principally
variable costs relative to fixed costs. The remaining ~60% of       catalysts for the MDI market), specialty additives (e.g.
revenues within the electronics division are specialty gases        surfactants, defoaming agents etc) and epoxy additives
and chemicals that are used within the flat panel,                  (mainly curing agents).
manufacturing of the semiconductor or photovoltaic cell. Air
Products sells ~50 – 60 key products on a merchant or cylinder      Managements aim is to achieve a 15% operating margin from
type business model. This unit made a loss during calendar          11.1% in 2008 and 6.4%% in 2009. A significant proportion of
4Q08 and 1Q09 however returned to profitability during 2Q09         this margin expansion is driven by cost cutting. Air Products
as volumes returned.                                                aim to shut down 40% of facilities world wide and reduce
                                                                    headcount by 80%. In addition the company has shrunk its
Approximately 85% of electronics revenues are for the               product offering removing low volume and unprofitable items
semiconductor industry, 10% for the flat panel display market       from its offering. The company is approximately one third of its
and 5% for the solar market.                                        way through this restructuring.




                                                                                                                                18
                                                                                             MORGAN         STANLEY             RESEARCH

                                                                                             February 16, 2010
                                                                                             Air Products and Chemicals Inc.




Exhibit 22
Air Products Discounted Cash Flow Valuation Analysis & Valuation Summary
Air Products (USD mm)                                                            2009         2010E      2011E        2012E         2013E        2014E     2015E
+EBIT (pre-exceptionals)                                                        1,300         1,606      1,838        2,054         2,202        2,314     2,456
Sales Growth                                                                    -21%           11%        10%          11%            7%           7%        6%
EBIT Growth                                                                     -22%           24%        14%          12%            7%           5%        6%
EBIT Margins                                                                     16%           18%        18%          18%           18%          18%       18%
EBITDA Margins                                                                  25.9%         27.3%      27.6%        27.2%         27.2%        26.8%     26.5%
-Taxes                                                                          -327          -407       -478          -534         -573         -602       -639
Tax rate                                                                        25%           25%        26%           26%          26%          26%        26%
=NOPAT                                                                           972          1,199      1,360         1,520        1,630        1,712      1,818
+Depreciation & amortization                                                     840           895        956          1,007        1,069        1,137      1,169
Gross Cash Flow                                                                 1,812         2,094      2,316         2,527        2,699        2,849      2,987

+Changes in working capital                                                       43           -296       -179          -213         -105         -112      -102
+Capital expenditures, asset purchases                                          -1,186        -1,465     -1,585        -1,427       -1,686       -1,798    -1,133
      Working Capital to Sales                                                   11%           13%        14%           14%          14%          14%       14%
      Depreciation to Sales                                                      12%            9%         9%            9%           9%           9%        8%
     Capex to Sales                                                              17%           15%        15%           12%          13%          13%        8%
     Capex to Depreciation                                                       1.4x          1.6x       1.6x          1.4x         1.6x         1.6x      0.9x
= Gross investment                                                              -1,143        -1,761     -1,764        -1,640       -1,791       -1,910    -1,234

Free cash flow from operations                                                   670           333        552           887          908          939      36,172

+ Present Enterprise Value of Air Products (USD mm) Year 2010E                $27,007.51               Terminal Value Air Products (USD mm) MS Estimates   34,419
 -Minority Interest                                                                    138             Terminal value Weight                                73%
- Air Products (USD mm) Net Debt 2010E                                               6,025             NPV of TV                                           19768
+ Investments                                                                        1,002
= Implied Market Cap. Of Air Products (USD mm) Year 2010E                           21,846
Fully-diluted shares                                                            217m
Implied Value per Air Products (USD mm) Share                                  $100.53
Current Share price                                                            $68.53
Upside/Downside                                                                 46.7%


Capital Structure                                                               2010E
Debt (Book Value) Weight 2010E                                                   29%
Equity (Market Value) Weight 2010E                                              71%                    Valuation Window
Debt to Equity Ratio 2010E                                                      100%                      DCF       Mid-Cycle PE   EV/Sales      DDM       Average
                                                                                                          $101          $91          $93         $78         $91
Cost of Debt                                                                    2010E
Rating of the Stock                                                                A
Air Products (USD mm) Cost of Long-term Debt                                     5.1%
Air Products (USD mm) After tax Cost of Long-term Debt                           3.8%



Cost of Equity                                                                  2010E
Current Market cap                                                                  14,892
Risk Free Rate                                                                   5.0%
Rm (Market Normalised Return)                                                   10.0%
Market Risk Premium                                                              5.0%
Air Products (USD mm) Bloomberg Market Beta                                      1.0x
Air Products (USD mm) Cost of Equity                                            10.1%

Air Products (USD mm) WACC                                                      8.2%
Assumed Long Term growth                                                        3.0%
Source: Morgan Stanley Research estimates, FactSet, Bloomberg, Company data




                                                                                                                                                                    19
                                                                                    MORGAN          STANLEY              RESEARCH

                                                                                    February 16, 2010
                                                                                    Air Products and Chemicals Inc.




Exhibit 23
Air Products Annual Segment Summary
Air Products Segment Summary                              2005        2006          2007          2008          2009          2010e        2011e        2012e         2013e        2014e        2015e
Revenue
   Merchant Gases (Geographies Estimated)
     North America                                          2,876       1,554         1,780         2,047         1,757         1,846        1,957        2,035            2,117     2,201        2,289
     Europe                                                 1,392         773         1,143         1,388         1,210         1,252        1,245        1,266            1,287     1,309        1,332
     Asia                                                     585         348           568           669           566           648          726          802              874       953        1,020
     Latin America                                             98          37            66            88            78            87           93           98              102       106          110
   Total                                                    4,951       2,713         3,556         4,192         3,612         3,834        4,020        4,201            4,380     4,570        4,751

   Tonnage Gases                                             457        2,224         2,937         3,574         2,574         3,121        3,692        4,400            4,832     5,349        5,822

   Electronics & Performance Materials                       436        1,801         2,069         2,209         1,582         1,745        1,919        2,111            2,259     2,395        2,490

   Equipment & Energy                                        397         537            586          438           490            472          496          521             547        574          603

   Other                                                    1,826       1,479               1             1             (1)           0        -            -                -         -            -

 Total Company                                              8,066       8,753         9,148        10,415         8,256         9,172       10,128       11,234           12,018    12,887       13,667
   Growth                                                    8.8%        8.5%          4.5%         13.8%        -20.7%         11.1%        10.4%        10.9%             7.0%      7.2%         6.0%

 Pre-tax Operating Income
     Consolidated Merchant                                   733         470            656          790           661            741          804          882             920        914          950
     Equity Affiliates                                        89          82             98          132            98            110          115          121             127        133          140
   Merchant Gases                                            822         552            754          921           760            851          919        1,003           1,047      1,047        1,090
     Margin                                                14.8%       17.3%          18.5%        18.8%         18.3%          19.3%        20.0%        21.0%           21.0%      20.0%        20.0%

   Tonnage Gases                                              63         341            426          483           400            460          552          649             729        817          899
     Margin                                                13.7%       15.3%          14.5%        13.5%         15.5%          14.7%        15.0%        14.7%           15.1%      15.3%        15.4%

   Electronics & Performance Materials                        43         190            229          246           102            210          269          296             316        335          349
     Margin                                                 9.9%       10.5%          11.1%        11.1%          6.4%          12.1%        14.0%        14.0%           14.0%      14.0%        14.0%

   Equipment & Energy                                         43          69             77           39            42             37           40           47              49         52           54
     Margin                                                10.7%       12.8%          13.1%         8.9%          8.6%           7.8%         8.0%         9.0%            9.0%       9.0%         9.0%

   Other Equity Affiliates                                       17          25            17            13            14             24           24           25            26           27           27

   Other                                                     108             (13)          (26)          (31)          (17)           25           34           35            35           36           37

 Total Company                                             1,095       1,165          1,477        1,671          1,300         1,606        1,838        2,054           2,202      2,314        2,456
   Margin                                                  13.6%       13.3%          16.1%        16.0%          15.7%         17.5%        18.2%        18.3%           18.3%      18.0%        18.0%
   Growth                                                  12.6%        6.4%          26.8%        13.1%         -22.2%         23.6%        14.5%        11.7%            7.2%       5.0%         6.2%
Source: Company data, Morgan Stanley Research estimates




                                                                                                                                                                     20
                                                                                                                     MORGAN                      STANLEY              RESEARCH

                                                                                                                     February 16, 2010
                                                                                                                     Air Products and Chemicals Inc.




Exhibit 24
Air Products Quarterly Income Statement
Air Products Income Statement                          2008Q1         2008Q2         2008Q3         2008Q4         2009Q1         2009Q2         2009Q3         2009Q4       2010Q1         2010Q2e         2010Q3e         2010Q4e

 Revenues                                                 2,407         2,543          2,750          2,715           2,195          1,955          1,976          2,129        2,174          2,217           2,329           2,453
 Growth (%)                                                  6%         10.6%          13.8%          25.3%             -9%         -23.1%         -28.1%         -21.6%        -1.0%          13.4%           17.9%           15.2%

 Cost of sales (reported)                                (1,754)        (1,872)        (2,041)        (2,027)        (1,630)        (1,440)        (1,418)        (1,545)      (1,569)         (1,607)         (1,687)         (1,782)

 Gross Profit                                              865            888            928            909            766            713            776            810          822             829             867             904
 Gross Margin (%)                                        35.9%          34.9%          33.8%          33.5%          34.9%          36.4%          39.3%          38.0%        37.8%           37.4%           37.2%           36.8%

 SG&A                                                     (259)          (272)          (284)          (275)          (247)           (231)          (232)          (234)       (244)           (235)           (245)           (253)
 SG&A as % Revenues                                      10.7%          10.7%          10.3%          10.1%          11.3%           11.8%          11.8%          11.0%       11.2%           10.6%           10.5%           10.3%
 SG&A Growth (%)                                         -6.1%          -4.1%          -3.6%          88.9%          -4.4%          -15.3%         -18.3%         -15.2%       -1.2%            1.9%            5.3%            8.2%

 D&A                                                      (211)          (217)          (220)          (221)          (201)          (197)          (217)          (226)        (217)           (220)           (225)           (233)
 D&A as % Revenues                                        8.8%           8.5%           8.0%           8.1%           9.1%          10.1%          11.0%          10.6%        10.0%            9.9%            9.7%            9.5%

 R&D                                                         (30)          (34)           (33)           (33)           (33)            (30)           (24)           (29)         (27)           (28)            (29)            (31)
 R&D as % Revenues                                         1.3%          1.3%           1.2%           1.2%           1.5%            1.5%           1.2%           1.4%         1.3%           1.3%            1.3%            1.3%
 R&D growth (%)                                           -5.6%          6.2%           0.3%           4.4%           9.6%          -13.7%         -27.2%         -10.9%       -18.1%          -6.4%           20.8%            4.3%

 Other income/ (expense)                                     17            10                 4              (5)            3              5              6              9         11                 9               9               9

 Income from equity investments                              25            42             47             31             25              27             29             32           27             35              37              34

Recurring Operating Profit                                 407            417            441            406            313            287            336            363          372             390             414             430
Recurring Operating Margin (%)                           16.9%          16.4%          16.0%          14.9%          14.2%          14.7%          17.0%          17.0%        17.1%           17.6%           17.8%           17.5%

 "One time" items included within EBIT                       (1)           (26)            (1)            (2)         (174)            -             (164)            (3)         -                (5)             (5)             (5)
 Operating profit (as reported)                            380            349            394            373            114            260             144           328          345             350             372             391
 Recurring operating profit margin (%)                   15.8%          13.7%          14.3%          13.7%           5.2%          13.3%            7.3%         15.4%        15.9%           15.8%           16.0%           15.9%

 EBITDA                                                    618            634            661            627            513            485            554            588          589             610             639             663
 EBITDA Margin (%)                                       25.7%          24.9%          24.0%          23.1%          23.4%          24.8%          28.0%          27.6%        27.1%           27.5%           27.4%           27.0%

 Interest expense (net)                                     (41)           (39)           (40)           (43)           (37)           (30)           (28)           (28)         (32)            (32)            (32)            (35)

 Others                                                     -              -              -              -              -              -              -              -            -               -               -               -

 Profit before taxes                                        366           378            402            363            276             257            309            335          340            358             382             396

 Income taxes - reported                                    (97)           (88)           (98)           (83)            (7)           (67)           (25)           (86)         (84)            (93)            (99)          (103)
 Income taxes - non-recurring                                 0              8              0              0            (58)           -              (54)             1          -                 1               1              1
 Income taxes - recurring                                   (96)           (80)           (98)           (82)           (65)           (67)           (79)           (86)         (84)            (93)            (99)          (103)
Income tax rate                                          26.2%          21.2%          24.3%          22.7%          23.6%          25.8%          25.7%          25.6%        24.5%           26.0%           26.0%           26.0%

 Minority interests                                             (6)            (5)            (8)            (5)            (5)            (2)            (5)        -                (5)             (4)             (4)             (4)

 Adjusted Net income                                       264            294            296            275            206             189           225            249          252             261             278             289
   Adj. net margin                                       11.0%          11.6%          10.8%          10.1%           9.4%            9.7%         11.4%          11.7%        11.6%           11.8%           12.0%           11.8%

 Cumulative effect of change in accounting principle        -             -              -              -              -               -              -              -            -              -               -               -
 Extraordinary items - Post tax                               (0)          20           (226)           (14)          (138)             16           (112)             (5)        -                (4)             (4)             (4)
 Net income                                                 264           314             70            262             69             206            113            244          252            258             275             285

 Basic shares outstanding                                  215            212            211            211            209             210            210            211          212            213             213             213
 Diluted shares outstanding                                222            219            218            217            212             212            214            216          217            216             216             216

 Recurring Basic EPS                                      1.23           1.38           1.40            1.31           0.98           0.90           1.07           1.18        1.19            1.23            1.31            1.36
 Basic EPS Growth (%)                                    20.6%          38.2%          10.0%           -5.5%         -20.0%         -34.8%         -23.6%          -9.5%       20.8%           35.9%           22.2%           14.6%

 Recurring Diluted EPS                                    1.19           1.34           1.36            1.27           0.97           0.89           1.05           1.16        1.16            1.21            1.29            1.33
 Diluted EPS Growth (%)                                  20.1%          38.1%          10.0%           -5.1%         -18.2%         -33.5%         -22.6%          -9.0%       19.4%           35.4%           22.6%           15.4%

 Cash dividends per share                                $0.38          $0.44          $0.44          $0.44          $0.44          $0.45          $0.45          $0.45        $0.45           $0.46           $0.46           $0.46
 Dividend growth (%)                                     11.8%          15.8%          15.8%          15.8%          15.8%           2.3%           2.3%           2.3%         2.3%            2.2%            2.2%            2.2%
 Payout ratio                                            30.9%          31.8%          31.4%          33.6%          44.7%          49.8%          42.0%          38.0%        37.8%           37.5%           35.1%           33.9%
Source: Company data, Morgan Stanley Research estimates




                                                                                                                                                                                                                                 21
                                                                                                              MORGAN             STANLEY                  RESEARCH

                                                                                                              February 16, 2010
                                                                                                              Air Products and Chemicals Inc.




Exhibit 25
Air Products Annual Income Statement
In US$ millions (except per share data)                2005           2006           2007          2008           2009          2010e        2011e         2012e        2013e        2014e        2015e

 Revenues                                                7,768          8,753          9,148        10,415          8,256         9,172       10,128        11,234       12,018       12,887       13,667
 Growth (%)                                               4.8%          12.7%           4.5%         13.8%         -20.7%         11.1%        10.4%         10.9%         7.0%         7.2%         6.0%

 Cost of sales (reported)                               (5,655)        (6,472)        (6,699)       (7,693)        (6,032)       (6,646)      (7,319)       (8,119)      (8,676)       (9,346)      (9,905)

   Depreciation & Amortization                            (706)          (757)          (790)         (869)          (840)         (895)        (956)       (1,007)      (1,069)       (1,137)     (1,169)

   Cost of sales (economic)                             (4,948)        (5,716)        (5,909)       (6,824)        (5,192)       (5,750)      (6,363)       (7,112)      (7,607)       (8,209)     (8,735)
   COGS as % Revenues                                   63.7%          65.3%          64.6%         65.5%          62.9%         62.7%        62.8%         63.3%        63.3%         63.7%       63.9%

 Gross Profit                                           2,820           3,037          3,239        3,590          3,064          3,422        3,765         4,121        4,412        4,678        4,931
 Gross Margin (%)                                       36.3%           34.7%          35.4%        34.5%          37.1%          37.3%        37.2%         36.7%        36.7%        36.3%        36.1%

 SG&A                                                   (1,014)        (1,075)        (1,000)       (1,090)          (943)         (976)      (1,013)       (1,101)      (1,178)       (1,263)     (1,339)
 SG&A as % Revenues                                     13.0%          12.3%          10.9%         10.5%           11.4%         10.6%       10.0%           9.8%         9.8%          9.8%        9.8%
 SG&A Growth (%)                                          4.6%           6.1%          -7.0%          9.1%         -13.5%          3.5%         3.7%          8.7%         7.0%          7.2%        6.0%

 D&A                                                      (706)          (757)          (790)        (869)          (840)          (895)        (956)       (1,007)      (1,069)      (1,137)      (1,169)
 D&A as % Revenues                                                                                   8.3%          10.2%           9.8%         9.4%          9.0%         8.9%         8.8%         8.6%
  Depreciation                                           (689)           (738)          (770)        (848)          (816)          (870)        (928)         (978)      (1,039)      (1,105)      (1,136)
  Amortization of intangibles                             (17)            (19)           (20)          (21)           (24)           (26)         (27)          (29)         (30)         (32)         (33)

 R&D                                                     (132)           (151)          (129)        (131)           (116)         (115)        (132)         (140)        (150)        (161)        (171)
 R&D as % Revenues                                       1.7%            1.7%           1.4%         1.3%            1.4%          1.3%         1.3%          1.3%         1.3%         1.3%         1.3%
 R&D growth (%)                                          4.4%           14.4%         -14.8%         1.3%          -11.0%         -1.4%        14.8%          6.7%         7.0%         7.2%         6.0%

 Other income/ (expense)                                          6              4          42            26             23             37           34            35           35           36            37

 Income from equity investments                           105             108            114          145            112            134          140           146          153          160          167

Recurring Operating Profit                              1,080           1,165          1,477        1,671          1,300          1,606        1,838         2,054        2,202        2,314        2,456
Recurring Operating Margin (%)                          13.9%           13.3%          16.1%        16.0%          15.7%          17.5%        18.2%         18.3%        18.3%        18.0%        18.0%

 "One time" items included within EBIT                     21               (2)           13           (30)
 Operating profit (as reported)                         1,101           1,163          1,490        1,641          1,187          1,472        1,699         1,908        2,050        2,154        2,289
 Reported operating profit margin (%)                   14.2%           13.3%          16.3%        15.8%          14.4%          16.1%        16.8%         17.0%        17.1%        16.7%        16.7%

 EBITDA                                                 1,786           1,922          2,267        2,540          2,140          2,501        2,794         3,061        3,272        3,450        3,626
 EBITDA Margin (%)                                      23.0%           22.0%          24.8%        24.4%          25.9%          27.3%        27.6%         27.2%        27.2%        26.8%        26.5%

 Interest expense (net)                                  (110)           (119)          (162)         (162)          (122)         (130)        (163)         (168)        (169)        (175)        (185)

 Other                                                        -              -              -             -              -          -            -             -            -             -            -

 Profit before taxes                                      970           1,046          1,315         1,509          1,178         1,476        1,676         1,886        2,034        2,139        2,271

 Income taxes - reported                                 (261)           (269)          (287)        (365)          (185)          (379)        (436)         (490)        (529)        (556)        (590)
 Income taxes - non-recurring                               7               3              5            (9)         (111)             4           -             -            -            -            -
 Income taxes - recurring                                (254)           (266)          (282)        (374)          (297)          (374)        (436)         (490)        (529)        (556)        (590)
Income tax rate                                         26.2%           25.4%          21.5%        24.8%          25.2%          25.4%        26.0%         26.0%        26.0%        26.0%        26.0%

 Minority interests                                        (23)              (30)           (21)          (23)           (11)       (17)         (18)          (18)         (19)          (19)         (20)

 Adjusted Net income                                      693             750          1,012         1,112           870          1,084        1,222         1,378        1,486        1,563        1,661

 Cumulative effect of change in accounting principle       -               (6)           -             -              -             -            -             -            -            -            -
 Extraordinary items - Post tax                            19             (20)            24          (202)          (238)          (11)         -             -            -            -            -
 Net income                                               712             723          1,036           910            631         1,074        1,222         1,378        1,486        1,563        1,661

 Basic shares outstanding                                 226             222            216          212            210            213          215           216          217          218          217
 Diluted shares outstanding                               231             228            223          219            214            216          218           220          220          221          220

 Basic EPS                                               3.15            3.26           4.79          4.29           3.01          5.05         5.69          6.38         6.86         7.18         7.67
 Basic EPS Growth (%)                                   16.8%            3.5%          46.8%        -10.5%         -29.8%         67.9%        12.8%         12.1%         7.5%         4.6%         6.8%

 Diluted EPS                                             3.08            3.18           4.64          4.15           2.96          4.96         5.60          6.28         6.75         7.06         7.54
 Basic EPS Growth (%)                                   16.5%            3.4%          45.9%        -10.6%         -28.8%         67.9%        12.8%         12.1%         7.5%         4.6%         6.8%

 Recurring diluted EPS                                   3.04            3.30           4.53         5.15            4.07          4.99         5.60          6.28         6.75         7.06         7.54
 Growth (%)                                             15.1%            8.5%          37.5%        13.7%          -21.0%         22.6%        12.2%         12.1%         7.5%         4.6%         6.8%

 Cash dividends per share                               $1.25           $1.34          $1.48        $1.70          $1.79          $1.83        $2.05         $2.30        $2.70        $2.82        $3.02
 Dividend growth (%)                                    20.2%            7.2%          10.4%        14.9%           5.3%           2.2%        12.2%         12.1%        17.4%         4.6%         6.8%
 Payout ratio                                           39.6%           41.1%          30.9%        39.7%          59.5%          36.2%        36.0%         36.1%        39.3%        39.3%        39.3%
Source: Company data, Morgan Stanley Research estimates




                                                                                                                                                                                                      22
                                                                                             MORGAN         STANLEY                RESEARCH

                                                                                             February 16, 2010
                                                                                             Air Products and Chemicals Inc.




Exhibit 26
Air Products Annual Cash Flow Statement
             In US$ millions (except per share data)             2005          2006            2007        2008        2009         2010e       2011e       2012e          2013e         2014e       2015e

              Net Income                                            712           723            1,036        910         631         1,074       1,222       1,378          1,486         1,563       1,661

              Depreciation                                          689            738            770          848         816          870         928         978          1,039         1,105       1,136
              Amortization                                            17             19             20          21           24           26         27          29             30            32          33
              Impairments and discontinued ops                      -                66           -            315         119          -           -           -              -             -           -
              (Gain) loss on sale of discontinued ops               -                16             15        (106)          (2)        -           -           -              -             -           -
              Deferred income taxes                                   43              8             14          37         (52)           45          47          55             39            43          39
              Undistributed equity earnings                         (40)           (39)           (60)         (78)        (58)        (134)       (140)       (146)          (153)         (160)       (167)
              (Gain) loss on sale of assets                           (8)          (80)           (28)           0            4         -           -           -              -             -           -
              Share based compensation                                17             76             71          61           60          59          61          66             71            76          80
              Non-current capital lease receivables                 (59)          (127)           (71)        (193)       (187)        (200)        -           -              -             -           -
              Pension and other post-retirement costs               -              -              150          139         -            (18)        (29)        (40)           (53)          (67)        (81)
              Other                                                 138            109            (65)         (85)          14            7        (23)        (30)           (13)          (17)        (12)

              Working capital
               Accounts receivable                                      (75)      (95)              (0)        (97)        159         (170)       (187)       (219)          (135)         (150)       (135)
               Inventories                                              (11)      (42)              (6)        (35)        (18)         (96)       (102)       (130)           (58)          (71)        (62)
               Contracts in progress                                    -         (63)             (61)         95          13          -           -           -              -             -           -
               Other receivables                                        -         (13)             (43)       (121)        (12)         135         (31)        (37)           (25)          (30)        (26)
               Payables and accrued liabilities                         (71)      103             (220)        (15)       (283)        (190)        151         185            122           148         130
               Other                                                     23       (54)             (27)        (18)         94           15         (10)        (12)             (9)         (10)          (9)

              Net cash from operating activities                   1,376         1,346           1,496       1,680       1,323        1,424       1,916       2,075          2,341         2,463       2,587

              Capital expenditure                                   (923)       (1,259)         (1,013)     (1,085)     (1,179)       (1,400)     (1,520)     (1,362)        (1,621)       (1,733)     (1,068)
              Acquisitions                                           (97)         (127)           (539)        (72)        (33)          (65)        (65)        (65)           (65)          (65)        (65)
              Investment in unconsolidated affiliates                (11)          (23)              (0)         (2)       (25)          -           -           -              -             -           -
              Divestitures and asset sales                            60           215               97          20          58          -           -           -              -             -           -
              Sale of discontinued ops                               -             -               -           423           51          -           -           -              -             -           -
              Insurance settlements                                  -               52              15        -           -             -           -           -              -             -           -
              Change in restricted cash                              -             -               -          (184)          87          -           -           -              -             -           -
              Other                                                    (3)         195             (43)        (20)        -             -           -           -              -             -           -
              Net cash used for investing activities                (973)         (947)         (1,483)       (920)     (1,040)       (1,465)     (1,585)     (1,427)        (1,686)       (1,798)     (1,133)

              Short term debt borrowings/ (repayments) - net         269           105             179        (179)       (123)         -           -           -              -             -            -
              Long term debt borrowings                              511           293             856         580         611          702         125         423            300           548          423
              Long-term debt repayments                             (634)         (159)           (429)        (96)        (83)        (452)       (125)       (423)          (300)         (548)        (423)
              Issuances of common stock/stock option exercises       138           103             203           87          54         -           -           -              -             -            -
              Purchases of common stock                             (500)         (482)           (575)       (793)        -            -           -          (159)          (120)          (81)        (803)
              Cash dividends                                        (276)         (294)           (312)       (349)       (373)        (389)       (441)       (497)          (585)         (615)        (653)
              Excess tax benefit on stock option exercises           -              18               65          51          16         -           -           -              -             -            -
              Other                                                  -              (6)            -           -           -            -           -           -              -             -            -
              Net cash used for financing activities                (493)         (423)            (15)       (699)        102         (139)       (441)       (655)          (705)         (697)      (1,456)

              Effect of exchange rate changes                            (0)            3             8           2           1          -           -           -              -             -           -

              Change in cash and cash equivalents                       (90)          (21)            5           63      385          (180)       (110)             (7)        (50)          (32)            (2)

              Cash and cash equivalents at year start               146               56              35       40         103           488         308         198            191           141         110
              Cash and cash equivalents at year end                  56               35              40      103         488           308         198         191            141           110         107
Source: Company data, Morgan Stanley Research estimates



                                                                                                                                                                                    23
                                                                                           MORGAN          STANLEY             RESEARCH

                                                                                           February 16, 2010
                                                                                           Air Products and Chemicals Inc.




Exhibit 27
Air Products Annual Balance Sheet
In US$ millions (except per share data)        2005       2006       2007       2008        2009       2010e       2011e       2012e       2013e      2014e      2015e

 Cash and cash equivalents                          56         35         40        103         488        308         198         191         141        110        107
 Accounts receivable -net                        1,453      1,550      1,513      1,575       1,363      1,533       1,720       1,939       2,074      2,224      2,359
 Inventories                                       454        492        477        504         510        605         707         837         895        966      1,028
 Contracts in progress                              82        192        260        152         132        123         123         123         123        123        123
 Prepaid expenses                                  -           55        106        108         115        101         111         123         132        141        150
 Other receivables and current assets              269        257        239        349         423        288         318         356         380        410        437
 Current assets of discontinued ops                101         32        224         57           5        -           -           -           -          -          -

 Total current assets                            2,415      2,613      2,858      2,848       3,036      2,957       3,178       3,569       3,745      3,974      4,203

 Property, plant and equipment, net              5,778      6,112      6,529      6,615       6,860      7,390       7,982       8,366       8,947      9,576      9,507
 Equity investments                                664        728        778        823         868      1,002       1,141       1,287       1,440      1,600      1,768
 Goodwill                                          881        984        907        928         916        951         986       1,021       1,056      1,091      1,126
 Other intangible assets - net                       96       113        261        290         263        267         269         270         270        269        265
 Noncurrent capital lease receivables              -          -          326        505         687        887         887         887         887        887        887
 Other long term assets                            442        575        312        504         450        467         515         570         609        653        692
 Noncurrent assets of discontinued ops             134         57        689         59         -          -           -           -           -          -          -

 Long term assets                                7,994      8,568      9,801      9,723      10,043     10,963      11,780      12,401      13,210     14,075     14,245

 Total assets                                   10,409     11,181     12,660     12,571      13,080     13,920      14,957      15,970      16,956     18,049     18,448

 Accounts payable                                1,353      1,648      1,543      1,666       1,608      1,418       1,569       1,754       1,876      2,024      2,154
 Accrued taxes                                     118         99        109         87          43         43           43         43           43        43          43
 Short term debt                                   310        418        593        419         334        334         334         334         334        334        334
 Current position of long term debt                137        152        100         32         452        125         423         300         548        423         63
 Current liabilities of discontinued ops            25          8         78          8          14        -           -           -           -          -          -

 Total current liabilities                       1,943      2,323      2,423      2,212       2,451      1,920       2,368       2,430       2,801      2,823      2,594

 Long-term debt                                  2,047      2,280      2,975      3,515       3,716      4,293       3,995       4,118       3,870      3,995      4,355
 Other long-term liabilities                       822        642        872      1,049       1,574      1,581       1,577       1,562       1,535      1,495      1,441
 Deferred income taxes                             835        833        706        627         408        454         501         556         594        637        676
 Noncurrent liabilities of discontinued ops          6        -           12          1         -          -           -           -           -          -          -

 Total liabilities                               5,652      6,079      6,987      7,404       8,150      8,247       8,442       8,666       8,800      8,951      9,065

 Minority interests                                181       178        177        136         138         138         138         138         138        138        138

 Common stock                                      249        249        249        249         249         249         249         249        249        249        249
 Additional paid in capital                        604        683        760        812         823         711         585         445        289        116        (78)
 Retained earnings                               5,317      5,744      6,459      6,990       7,235       7,919       8,701       9,582     10,484     11,432     12,439
 Accumulated other comprehensive income/ (lo      (433)      (222)      (143)      (549)     (1,162)     (1,162)     (1,162)     (1,162)    (1,162)    (1,162)    (1,162)
 Less: Treasury stock/shares in trust           (1,162)    (1,530)    (1,829)    (2,471)     (2,353)     (2,183)     (1,996)     (1,949)    (1,843)    (1,675)    (2,203)

 Total Shareholders equity                       4,576      4,924      5,496      5,031       4,792      5,535       6,378       7,166       8,018      8,960      9,245

 Total Liabilities and equity                   10,409     11,181     12,660     12,571      13,080     13,920      14,957      15,970      16,956     18,049     18,448
Source: Company data, Morgan Stanley Research estimates




                                                                                                                                                                     24
                                                                                MORGAN         STANLEY            RESEARCH

                                                                                February 16, 2010
                                                                                Air Products and Chemicals Inc.




                                                      Morgan Stanley ModelWare is a proprietary analytic framework that helps clients
                                                      uncover value, adjusting for distortions and ambiguities created by local accounting
                                                      regulations. For example, ModelWare EPS adjusts for one-time events, capitalizes operating
                                                      leases (where their use is significant), and converts inventory from LIFO costing to a FIFO
                                                      basis. ModelWare also emphasizes the separation of operating performance of a company
                                                      from its financing for a more complete view of how a company generates earnings.



                                                       Disclosure Section
The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. Incorporated, and/or Morgan Stanley C.T.V.M. S.A.
and their affiliates (collectively, "Morgan Stanley").
For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan
Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley
Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA.
Analyst Certification
The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and
that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this
report: Paul Mann.
Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.
Global Research Conflict Management Policy
Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at
www.morganstanley.com/institutional/research/conflictpolicies.
Important US Regulatory Disclosures on Subject Companies
As of January 29, 2010, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in
Morgan Stanley Research: E.I. DuPont de Nemours & Co., The Dow Chemical Company.
As of January 29, 2010, Morgan Stanley held a net long or short position of US$1 million or more of the debt securities of the following issuers covered
in Morgan Stanley Research (including where guarantor of the securities): Air Products and Chemicals Inc., E.I. DuPont de Nemours & Co., Kraton
Performance Polymers Inc., Praxair Inc., The Dow Chemical Company.
Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of E.I. DuPont de Nemours & Co.,
Kraton Performance Polymers Inc., The Dow Chemical Company.
Within the last 12 months, Morgan Stanley has received compensation for investment banking services from E.I. DuPont de Nemours & Co., Kraton
Performance Polymers Inc., Praxair Inc., The Dow Chemical Company.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Air Products and
Chemicals Inc., E.I. DuPont de Nemours & Co., Praxair Inc., The Dow Chemical Company.
Within the last 12 months, Morgan Stanley & Co. Incorporated has received compensation for products and services other than investment banking
services from Air Products and Chemicals Inc., E.I. DuPont de Nemours & Co., The Dow Chemical Company.
Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client
relationship with, the following company: Air Products and Chemicals Inc., E.I. DuPont de Nemours & Co., Kraton Performance Polymers Inc., Praxair
Inc., The Dow Chemical Company.
Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past
has entered into an agreement to provide services or has a client relationship with the following company: Air Products and Chemicals Inc., E.I. DuPont
de Nemours & Co., Praxair Inc., The Dow Chemical Company.
Morgan Stanley & Co. Incorporated makes a market in the securities of Air Products and Chemicals Inc., E.I. DuPont de Nemours & Co., Praxair Inc.,
The Dow Chemical Company.
The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment
banking revenues.
The fixed income research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation
based upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and
capital markets profitability or revenues), client feedback and competitive factors. Fixed Income Research analysts' or strategists' compensation is not
linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks.
Morgan Stanley and its affiliates do business that relates to companies/instruments covered in Morgan Stanley Research, including market making,
providing liquidity and specialized trading, risk arbitrage and other proprietary trading, fund management, commercial banking, extension of credit,
investment services and investment banking. Morgan Stanley sells to and buys from customers the securities/instruments of companies covered in
Morgan Stanley Research on a principal basis. Morgan Stanley may have a position in the debt of the Company or instruments discussed in this report.
Certain disclosures listed above are also for compliance with applicable regulations in non-US jurisdictions.
STOCK RATINGS
Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below).
Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the
equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since
Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley
Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as
investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings)
and other considerations.
Global Stock Ratings Distribution
(as of January 31, 2010)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside
our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we
cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative
weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy
recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.




                                                                                                                                                    25
                                                                                 MORGAN         STANLEY            RESEARCH

                                                                                 February 16, 2010
                                                                                 Air Products and Chemicals Inc.




                         Coverage Universe    Investment Banking Clients (IBC)
                                        % of                   % of % of Rating
Stock Rating Category       Count       Total     Count Total IBC Category
Overweight/Buy                999        40%          296        41%         30%
Equal-weight/Hold            1088        43%          333        46%         31%
Not-Rated/Hold                 21         1%            4         1%         19%
Underweight/Sell              396        16%           90        12%         23%
Total                       2,504                     723
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual
circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan
Stanley or an affiliate received investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe,
on a risk-adjusted basis, over the next 12-18 months.
Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage
universe, on a risk-adjusted basis, over the next 12-18 months.
Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the
analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.
Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage
universe, on a risk-adjusted basis, over the next 12-18 months.
Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the
relevant broad market benchmark, as indicated below.
In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant
broad market benchmark, as indicated below.
Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant
broad market benchmark, as indicated below.
Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index;
Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.
.
Stock Price, Price Target and Rating History (See Rating Definitions)




                                                                                                                                                      26
                                                                                              MORGAN            STANLEY           RESEARCH

                                                                                              February 16, 2010
                                                                                              Air Products and Chemicals Inc.




Important Disclosures for Morgan Stanley Smith Barney LLC Customers
Citi Investment Research & Analysis (CIRA) research reports may be available about the companies or topics that are the subject of Morgan Stanley Research. Ask your
Financial Advisor or use Research Center to view any available CIRA research reports in addition to Morgan Stanley research reports.
Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC, Morgan
Stanley and Citigroup Global Markets Inc. or any of their affiliates, are available on the Morgan Stanley Smith Barney disclosure website at
www.morganstanleysmithbarney.com/researchdisclosures.
For Morgan Stanley and Citigroup Global Markets, Inc. specific disclosures, you may refer to www.morganstanley.com/researchdisclosures and
https://www.citigroupgeo.com/geopublic/Disclosures/index_a.html.
Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the
same person who reviews the Equity Research report on behalf of Morgan Stanley. This could create a conflict of interest.
Other Important Disclosures
Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the
recommendations or views expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other factors. For
all research available on a particular stock, please contact your sales representative or go to Client Link at www.morganstanley.com.
For a discussion, if applicable, of the valuation methods and the risks related to any price targets, please refer to the latest relevant published research on these stocks.
Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the individual financial
circumstances and objectives of persons who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and
encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor's individual
circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and certain investors
may not be eligible to purchase or participate in some or all of them.
Morgan Stanley Research is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy.
The "Important US Regulatory Disclosures on Subject Companies" section in Morgan Stanley Research lists all companies mentioned where Morgan Stanley owns 1% or
more of a class of common equity securities of the companies. For all other companies mentioned in Morgan Stanley Research, Morgan Stanley may have an investment
of less than 1% in securities/instruments or derivatives of securities/instruments of companies and may trade them in ways different from those discussed in Morgan Stanley
Research. Employees of Morgan Stanley not involved in the preparation of Morgan Stanley Research may have investments in securities/instruments or derivatives of
securities/instruments of companies mentioned and may trade them in ways different from those discussed in Morgan Stanley Research. Derivatives may be issued by
Morgan Stanley or associated persons
With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to use reliable,
comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in Morgan Stanley
Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views presented in Morgan Stanley Research have
not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel.
Morgan Stanley Research personnel conduct site visits from time to time but are prohibited from accepting payment or reimbursement by the company of travel expenses
for such visits.
The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates,
securities/instruments prices, market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or
other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on
assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the subject company's
securities/instruments.
Morgan Stanley may make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report.




                                                                                                                                                                              27
                                                                                             MORGAN           STANLEY            RESEARCH

                                                                                             February 16, 2010
                                                                                             Air Products and Chemicals Inc.




To our readers in Taiwan: Information on securities/instruments that trade in Taiwan is distributed by Morgan Stanley Taiwan Limited ("MSTL"). Such information is for your
reference only. Information on any securities/instruments issued by a company owned by the government of or incorporated in the PRC and listed in on the Stock Exchange
of Hong Kong ("SEHK"), namely the H-shares, including the component company stocks of the Stock Exchange of Hong Kong ("SEHK")'s Hang Seng China Enterprise
Index; or any securities/instruments issued by a company that is 30% or more directly- or indirectly-owned by the government of or a company incorporated in the PRC and
traded on an exchange in Hong Kong or Macau, namely SEHK's Red Chip shares, including the component company of the SEHK's China-affiliated Corp Index is
distributed only to Taiwan Securities Investment Trust Enterprises ("SITE"). The reader should independently evaluate the investment risks and is solely responsible for
their investment decisions. Morgan Stanley Research may not be distributed to the public media or quoted or used by the public media without the express written consent
of Morgan Stanley. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or
a solicitation to trade in such securities/instruments. MSTL may not execute transactions for clients in these securities/instruments.
To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia Limited as part of its regulated
activities in Hong Kong. If you have any queries concerning Morgan Stanley Research, please contact our Hong Kong sales representatives.
Morgan Stanley Research is disseminated in Japan by Morgan Stanley Japan Securities Co., Ltd.; in Hong Kong by Morgan Stanley Asia Limited (which accepts
responsibility for its contents); in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore)
Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of Singapore, which accepts responsibility for its contents; in Australia to
"wholesale clients" within the meaning of the Australian Corporations Act by Morgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial services
license No. 233742, which accepts responsibility for its contents; in Australia to "wholesale clients" and "retail clients" within the meaning of the Australian Corporations Act
by Morgan Stanley Smith Barney Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813, which accepts responsibility for its
contents; in Korea by Morgan Stanley & Co International plc, Seoul Branch; in India by Morgan Stanley India Company Private Limited; in Canada by Morgan Stanley
Canada Limited, which has approved of, and has agreed to take responsibility for, the contents of Morgan Stanley Research in Canada; in Germany by Morgan Stanley
Bank AG, Frankfurt am Main and Morgan Stanley Private Wealth Management Limited, Niederlassung Deutschland, regulated by Bundesanstalt fuer
Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets
Commission (CNMV) and states that Morgan Stanley Research has been written and distributed in accordance with the rules of conduct applicable to financial research as
established under Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated, which accepts responsibility for its contents. Morgan Stanley & Co.
International plc, authorized and regulated by the Financial Services Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes
of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affiliates. Morgan Stanley Private Wealth Management
Limited, authorized and regulated by the Financial Services Authority, also disseminates Morgan Stanley Research in the UK. Private U.K. investors should obtain the
advice of their Morgan Stanley & Co. International plc or Morgan Stanley Private Wealth Management representative about the investments concerned. RMB Morgan
Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is
a joint venture owned equally by Morgan Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand
Limited.
The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial Services
Authority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services to which this research relates will only
be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client.
The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial Centre
Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined by the
QFCRA.
As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory
activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage houses, portfolio
management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones providing these
comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying
solely to this information stated here may not bring about outcomes that fit your expectations.
The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no warranties or
representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to
such data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property of MSCI and S&P.
Morgan Stanley Research, or any portion thereof may not be reprinted, sold or redistributed without the written consent of Morgan Stanley.
Morgan Stanley Research is disseminated and available primarily electronically, and, in some cases, in printed form.
Additional information on recommended securities/instruments is available on request.




                                                                                                                                                                            28
                                                                                       MORGAN    STANLEY            RESEARCH




The Americas                                   Europe                                    Japan                           Asia/Pacific
1585 Broadway                                  20 Bank Street, Canary Wharf              4-20-3 Ebisu, Shibuya-ku        1 Austin Road West
New York, NY 10036-8293                        London E14 4AD                            Tokyo 150-6008                  Kowloon
United States                                  United Kingdom                            Japan                           Hong Kong
Tel: +1 (1) 212 761 4000                       Tel: +44 (0) 20 7 425 8000                Tel: +81 (0) 3 5424 5000        Tel: +852 2848 5200




Industry Coverage:US Chemicals

Company (Ticker)                              Rating (as of) Price* (02/12/2010)


Paul Mann, CFA
Air Products and Chemicals Inc.              O (02/16/2010)                   $68.53
(APD.N)
E.I. DuPont de Nemours & Co.                  E (01/20/2010)                  $32.28
(DD.N)
Kraton Performance Polymers Inc.             O (01/26/2010)                    $13.6
(KRA.N)
Praxair Inc. (PX.N)                          E (02/16/2010)                   $76.93
The Dow Chemical Company                     O (01/20/2010)                   $27.79
(DOW.N)

Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.




© 2010 Morgan Stanley

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:52
posted:3/15/2010
language:English
pages:29