Corporate Governance

Airgas, Inc. v. Air Products: Staggered Boards Staggered (Introduction and Facts)(Part 1)

By J Robert Brown Jr.

Even Delaware can occasionally issue a decision that surprises and Airgas, Inc. v. Air Products certainly qualifies.  After Selectica and Yucaipa validated poison pills in the context of proxy contests at companies with staggered boards, it would have been reasonable to predict that the Delaware courts would do little to interfere with the use of staggered boards or adopt positions that would allow for their circumvention.   On that basis, Airgas should have won its challenge to the bylaw proposed by Air Products and adopted by shareholders that effectively circumvented the Airgas staggered board.  Yet it did not.

For that reason alone the case warrants a serious examination.  But there are other reasons.  It provides a road map for circumventing staggered boards and also provides shareholders with a rare devise that could be used to subject a board to greater shareholder oversight.  Finally, and  most importantly,  the opinion triggers the application of the Delaware failsafe mechanism for ensuring management friendly mechanism – the Delaware Supreme Court.

Airgas has a staggered board.  On Sept. 15, 2010, the company held its annual meeting.  Air Products ran a competing slate (one third of the board) and succeeded in elected all of them.  The election was to some degree a blow out, with the insurgent candidates receiving almost twice the number of votes as the incumbent directors. 

Ordinarily, Air Products would need to wait until the following year to run enough directors to obtain control.  But not willing to accept the delay, Air Products proposed a number of bylaws, one of which would advance the next annual meeting of shareholders to January, only a few months away.  In effect, Air Products would have an opportunity to elect a second tranche of directors (and obtain a majority) only three months after the first.  The bylaw passed with 51% of the votes cast (and 45.8% of the outstanding shares). 

Litigation ensued and the parties turned to the Delaware Chancery Court to determine whether the bylaw was valid. 

Full post as published by The Race to the Bottom on November 18, 2010 (boomark / email).