Thursday, November 17, 2011

Air Products and Chemicals, Inc. v. Airgas, Inc. case brief

Air Products and Chemicals, Inc. v. Airgas, Inc. 
2011 WL 806417 (Del. Ch. 2011), p. 1283

-Air Products launched hostile bid to acquire Air Gas.  
-During Sep. 2010 annual meeting, Air Products supported 3 independent directors who were elected to Air Gas’ board.  They would consider Air Products’ offer without bias.
-Air Products offered $70/share, director’s stated that offer = inadequate.
-Air Gas’ charter allowed for 33% of outstanding shares to call special meeting and to remove entire board with vote of 67% of outstanding shares.
-Air Gas also had a poison pill.  
-Air Products did not seek to remove entire board, instead sought to challenge validity of board’s poison pill.  
1.  Was Air Gas’ defensive measures fair?
2.  Were Air Gas’ defensive measures preclusive because they rendered the possibility of an effective proxy contest realistically unattainable?
1.  Yes, Air Gas simply wanted to maintain the status quo and manage the company for the long term.
2.  No, obtaining control at some point in the future was realistically obtainable.
-A defensive measure is coercive if it is aimed at cramming down on its shareholders a management-sponsored alternative.
-A defensive measure is not preclusive if they delay control of the board (even if significant) so long as obtaining control at some point in the future is realistically obtainable.
Realistically obtainable must mean more than a mere mathematical probability.

-Air Products had two options in pursuing Air Gas.  1.  could call special meeting to remove the entire board with a supermajority vote of outstanding shares, or 2.  could wait until the 2011 annual meeting to nominate a slate of directors (here there was a staggered board).
-Effective Staggered Board: one which a bidder must go through two annual meetings in order to gain majority control of the target’s board. (AG did not have a true ESB because it allowed for 33% of stockholders to call meeting to remove board by 67% vote).
-Court stated that AP could get 67% of vote if its offer was sufficiently appealing.
2.  Each annual meeting must take place approximately one year after last annual meeting.
-The court uses the Unocal Proportionality Test:  Specific nature of the threat sets parameters for the range of permissible defensive tactics at any given time.  (If defensive measure is not coercive or preclusive).
-The AG board acted in good faith, with numerous outside advisors, concluded that offer undervalued Air Gas.
-Poison pills are respected so long as boards are found to be acting in good faith and in accordance with their fiduciary duties and management is acting with discretion

Course: Corporations.
Issues:  Merger, Unocal Test, Poison Pills, Defensive Measure

Air Products v. Air Gas Brief

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