Air Products v. Airgas: Rumors of Death of the Poison Pill Have Been Greatly Exaggerated
By Erik Belenky, Kevin Logue & Carl Sanchez
On February 15, 2011, in Air Products and Chemicals, Inc. v. Airgas, Inc., et al, Chancellor Chandler of the Court of Chancery of the State of Delaware upheld the Airgas boards use of a poison pill to block a structurally non-coercive, all-cash, all-shares, fully financed tender offer directed to the corporations stockholders, even after a full year had gone by since an earlier Air Products offer was made public, the staggered incumbent board had already lost one election contest, and the stockholders arguably were fully informed as to the target boards views on the inadequacy of the offer. The case highlighted a classic governance battle over whether in such a context the board gets to decide when and if the corporation is for sale, or whether the stockholders must be given the chance to decide whether to take the offer. While finding that a board cannot just say no to such an offer, the Court confirmed that a board found to be acting in good faith, after reasonable investigation and reliance on outside advisors, and which articulates and convinces the Court that a hostile tender offer poses a legitimate threat to the corporate enterprise, may address that perceived threat by blocking the tender offer and forcing the bidder to elect a board majority that supports its bid. The Court, while expressing misgivings about the state of the law and the ongoing utility of the pill in this particular context, found that the Airgas board met its Unocal burden to articulate a legally cognizable threat (the inadequate price, coupled with the fact that a majority of Airgass stockholders likely would tender into the offer) and implemented defensive measures that fall within the range of reasonable responses to such a threat.