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Clifford Chance

Clifford Chance


Cross-Border Litigation Series: Delaware Court Supports Poison Pill Defense in Air Products v. Air Gas

16 February 2011

Late yesterday, Chancellor William B. Chandler, III of the Delaware Chancery Court simultaneously affirmed the vitality of the poison pill to ward off an unwanted hostile tender offer and confirmed that the decision-making authority to accept or reject a hostile takeover remains firmly in the province of the Board of Directors rather than the target's shareholders. This much-anticipated opinion by the Delaware Chancery Court sustained the decision by the Board of Airgas, Inc. to employ the pill to block a hostile takeover bid by its competitor, Air Products and Chemicals, although the offer had been pending for well over a year and the shareholders were well informed of the Board's negative assessment and recommendation. Over an 18-month period, the Airgas Board rejected four different all-cash, all-shares offers by Air Products on the ground that each of these offers undervalued Airgas shares. The conduct and decisions of the Board were and are consistent with existing Delaware law. As explained by Chancellor Chandler:

"…as Delaware law currently stands, the answer must be that the power to defeat an inadequate hostile tender offer ultimately lies with the board of directors. As such, I find that the Airgas board has met its burden under Unocal to articulate a legally cognizable threat (the allegedly inadequate price of Air Products’ offer, coupled with the fact that a majority of Airgas’s stockholders would likely tender into that inadequate offer) and has taken defensive measures that fall within a range of reasonable responses proportionate to that threat. I thus rule in favor of defendants. Air Products’ and the Shareholder Plaintiffs’ requests for relief are denied, and all claims asserted against defendants are dismissed with prejudice…"

It is clear that the Chancery Court will continue to accord target boards considerable latitude to reject takeover bids that the boards view as inadequate; and it is equally clear that a hostile tender offer faces a formidable challenge when, as here, confronted with both a poison pill and a staggered board.

Immediately after the decision was released, Air Products announced that it was abandoning the offer. John E. McGlade, Air Products’ chairman, stated: “It is abundantly clear that the Airgas Board is thoroughly entrenched in its position, so we have decided to withdraw our offer and move on.”

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