The Wall Street Journal said that the upcoming Air Products v. Airgas trial would deliver "one of the most significant [corporate law] decisions in a generation, one that could could affect the balance of power between boards and shareholders."
On Tuesday January 25, Chancellor William B. Chandler III of the Delaware Court of Chancery will consider whether to prohibit a corporation from using a poison pill to defend against a hostile takeover bid.
Industrial gas manufacturer Air Products, which had been pursuing a merger with rival Airgas since October 2009, made public its intention to buy Airgas when it sued Airgas for refusing to properly consider an Air Products offer to purchase Airgas for $60 per share, which represented a 38% premium above the market price.
By September 2010, Air Products had increased its offer to $65.50, which Airgas rejected, as it had rejected all of Air Products' previous offers
However, also in September, Airgas shareholders elected a slate of three directors endorsed by Air Products, and approved a bylaw change that would move Airgas's next annual meeting to January 2011, thus giving Air Products a chance to elect three more of its endorsed candidates, which would constitute a majority of the Airgas board.
In October, 2010, Air Products and Airgas faced off in a Delaware courtroom to resolve whether the shareholder-approved bylaw change was valid, and whether the Airgas shareholders were entitled to accept the $65.50 offer over the board's objection. The Court of Chancery did not decide whether the $65.50 offer was adequate, but upheld the bylaw change, and Airgas requested an expedited appeal.
On November 3, 2010, the Delaware Supreme Court heard the Airgas appeal and on November 23rd reversed the lower court, concluding that the attempted bylaw change was invalid because the board members' three-year terms were inappropriately shortened, which amounted to removing the board members without cause, which in turn could only be accomplished by a supermajority vote of 67%, not the simple majority that had supported the bylaw change.
On December 22, 2010, Airgas rejected Air Products' "best and final offer" of $70 per share. Airgas called the $70 offer "clearly inadequate," and said the company was worth $78 per share.
Before the Delaware Court of Chancery now is Air Products' request that the Court invalidate the Airgas shareholder rights plan, commonly called a "poison pill." A poison pill automatically dilutes the holdings of a suitor that accumulates a certain number of shares, in the case of Airgas the threshold is 15%. The effect of a poison pill is to prevent a suitor from acquiring the company without the board's approval. However, courts will invalidate a poison pill if it is considered too harsh a remedy. This raises the question of when an offer is good enough that shareholders should be allowed to accept it.
The parties had presented evidence during the October trial as to whether the $65.50 offer was adequate. However, on December 23, Chancellor William B. Chandler III offered the parties a chance to provide additional evidence and argument as to whether Airgas may continue to assert its poison pill defense now that the Air Products offer has been raised to $70.
The supplemental hearing begins Tuesday January 25, 2011, and is expected to continue through Friday. Airgas must explain why its shareholders should be prevented from accepting the $70 offer, and Air Products must show why the $70 offer is adequate.
Air Products is represented by Cravath; Airgas by Wachtell Lipton.
CVN will webcast the Air Products v. Airgas trial live.
In September 2010,