On February 15, 2011, the Delaware Chancery Court upheld the Airgas, Inc. board’s decision to keep a poison pill in place to block the consummation of the Air Products and Chemicals, Inc. hostile tender offer, even when the offer was non-coercive, all-cash, fully financed and the stockholders were fully informed as to the target board’s view on the inadequacy of the offer.

Air Products initially sought to acquire Airgas in 2009 through discussions with management in an all-stock transaction for $60 per share, but these advances were rebuffed. Air Products’ offer went hostile in February 2010, when it launched an all-cash, fully financed public tender offer for all the outstanding Airgas shares at a price of $60. At the subsequent Airgas 2010 annual meeting, three Air Products nominees were elected to the Airgas board. By the time the court reviewed the case in February 2011, Air Products had made its “best and final” offer of $70 per share. The Airgas board unanimously (including the Air Products nominees) rejected that offer as being “clearly inadequate.” Throughout the process, the Airgas board repeatedly said that Airgas is worth at least $78 per share.

Air Products asked the court to order Airgas to redeem the poison pill and to allow Airgas’ stockholders to decide for themselves whether they want to tender into the offer.

The court analyzed the allocation of power between directors and stockholders in determining “who gets to decide when and if the corporation is for sale.” The court concluded that under Delaware law, “the answer must be that the power to defeat an inadequate hostile tender offer ultimately lies with the board of directors.” The court found that the “Airgas board 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’ 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.” The court specifically noted that the Airgas board was comprised of a majority of outside directors (nine out of 10), including the three Air Products nominees, that the board relied on three financial advisors who opined that the offer was inadequate, and that Airgas’ business plan had been carefully reviewed and not “tweaked” during the process.

The court noted, however, that this does not mean that a board can “just say never” to a hostile tender offer. “Only a board of directors found to be acting in good faith, after reasonable investigation and reliance on the advice of outside advisors, 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.”

Air Products and Chemicals Inc. v. Airgas, Inc., C.A. No. 5249-CC, 5256-CC (Del. Ch. Feb. 15, 2011).