Air Products & Chemicals, Inc. v. Airgas, Inc.

On Feb. 15, 2011, Chancellor William B. Chandler III of the Delaware Court of Chancery issued his ruling in the epic takeover battle between Air Products & Chemicals, Inc. and Airgas, Inc. The case posed the fundamental question regarding the allocation of power between directors and stockholders in a hostile tender offer: Who gets to decide when and if the corporation is for sale? More specifically, as framed by Chancellor Chandler, when faced with a structurally non-coercive, all-cash, fully-financed tender offer directed to the stockholders of the corporation, may a board of directors, acting in good faith and with a reasonable basis for its decision, keep a poison pill in place so as to prevent stockholders from making their own decision about whether they want to tender their shares, even if the stockholders are fully informed as to the board's views on the inadequacy of the offer? On the facts before it, the court concluded that the Airgas board could maintain its poison pill, effectively denying stockholders the right to vote on the Air Products offer, because the Airgas board had met its Unocal burden (Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985)) to articulate a legally cognizable threat posed by the offer, and the retention of the pill by the board fell within a range of reasonableness proportionate to the threat. In its analysis, the court found that the likelihood that a majority of Airgas stockholders would tender into an offer the board judged inadequate constituted a legally cognizable threat, and that the retention of the pill in the face of the threat was a proportionately reasonable response. The setting of corporate goals and the timeframe for achieving those goals remain squarely the responsibility of the board and may not be delegated to stockholders. Until further pronouncement by the Supreme Court of Delaware, the power to defeat an inadequate hostile tender offer lies with the board of directors and its judgment to maintain its poison pill.