Corporate Governance

Delaware Validates "Just Say Never": Air Products v. Airgas (Part 1)

By J Robert Brown Jr.

We will break from the posts about SEC v. Tourre and the Morrison case to discuss the recent opinion in Airgas. 

Back in late January, I had this to say about the poison pill in Airgas:  "Either Chandler will uphold the pill or it will get reversed on appeal," said J. Robert Brown, a professor at the University of Denver's Sturm College of Law."

A poison pill is simply too important to Delaware's preeminance in the corporate governance realm.  If the courts suggested any meaningful limitations on the pill, companies would consider going elsewhere.  Its not that the judges are thinking specifically about how they can keep companies incorporated in Delaware but the philosophical approach used by these jurists is so management friendly that they path they have chosen compels a certain result.  In this case, upholding the poison pill was one of them.

Chancellor Chandler upheld the poison pill adopted by Airgas.  Airgas viewed the offer by Air Products at $70 as unfair.  Oridinarly, this is a winning argument for the poison pill.  But Airgas had the pill in place for a year and no other company made a competing bid.  See Opinion, at 4 ("Now, over a year since Air Products first announced its all-shares, all cash tender offer, the terms of that offer (other than price) remain essentially unchanged.").  The one year period provided strong evidence that the Air Products price was fair and that the board was "just saying never."

The court upheld the poison pill.  The court emphatically concluded that it was not validating the "just say no" approach to tender offers.  But in fact it was.  Moreover, the pill emphasized what had become clear in Selectica and Yucaipa that pills can remain in place as long as the insurgents had a chance to win a proxy fight.  Moreover, the chance to win a proxy fight really meant the chance to win a contest over two years.  The court in Airgas was locked into the reasoning by the Supreme Court in Selectica that held that poison pills were not to be given a more searching review even when the company had in place a staggered board. 

We will discuss the implications of this opinion in the next few posts.

We will have the opinion posted later today on the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on February 16, 2011 (boomark / email).