Air Products v. Airgas
In Air Products v. Airgas, Airgas CEO Peter McCausland testified that the EBITDA drop that occurred during the great recession was Airgas’s only EBITDA decline in 22 years, and that going forward Airgas was projecting “record earnings”.
Mr. McCausland said that the rapid change in Airgas’s fortunes confirmed “exactly what we have said, and we have been saying ever since Air Products came along…We’ve done everything we said we would do.”
In Air Products v. Airgas, today’s second witness, Air Products’ presiding director William Davis, testified that he was not aware of any instances in which a board of directors viewed its offer as adequate and yet nonetheless removed the company’s defenses so as to facilitate the offer.
Mr. Davis also stated his belief that most of the Airgas stock had been acquired by arbitrageurs (arbs) who had acquired their stock for less than $70 and would accept a $70 price.
The first witness to testify in the Air Products v. Airgas trial webcast live by CVN was Air Products CFO Paul Huck, who has led the acquisition effort for Air Products.
Mr. Huck told the court that after Air Products lost in the Delaware Supreme Court, they viewed themselves as having three options: walking away, holding a special meeting, or raising the offer to their best and final offer.
Air Products rejected the possibility of holding a special meeting, said Mr. Huck, because their advisors told them that getting to 67% was an “impossible task” and that no one had ever removed a board with a special meeting.
So their best option, said Mr. Huck, was to make their best and final offer, and try to convince the Delaware Court of Chancery that that best and final offer was not a threat to shareholders under Unocal.
Air Products was unwilling to wait any longer to consummate the deal, according to Mr. Huck, because they had other options, and the Air Products shareholders had long carried the burden of the reduced price of Air Products stock due to deal uncertainty.
Watch CVN’s live webcast of air Products ongoing effort to acquire Airgas in Air Products v. Airgas.
The Wall Street Journal said that the upcoming Air Products v. Airgas trial would deliver “one of the most significant [corporate law] decisions in a generation, one that could could affect the balance of power between boards and shareholders.”
On Tuesday January 25, Chancellor William B. Chandler III of the Delaware Court of Chancery will consider whether to prohibit a corporation from using a poison pill to defend against a hostile takeover bid.
Industrial gas manufacturer Air Products, which had been pursuing a merger with rival Airgas since October 2009, made public its intention to buy Airgas when it sued Airgas for refusing to properly consider an Air Products offer to purchase Airgas for $60 per share, which represented a 38% premium above the market price.
By September 2010, Air Products had increased its offer to $65.50, which Airgas rejected, as it had rejected all of Air Products’ previous offers
However, also in September, Airgas shareholders elected a slate of three directors endorsed by Air Products, and approved a bylaw change that would move Airgas’s next annual meeting to January 2011, thus giving Air Products a chance to elect three more of its endorsed candidates, which would constitute a majority of the Airgas board.
In October, 2010, Air Products and Airgas faced off in a Delaware courtroom to resolve whether the shareholder-approved bylaw change was valid, and whether the Airgas shareholders were entitled to accept the $65.50 offer over the board’s objection. The Court of Chancery did not decide whether the $65.50 offer was adequate, but upheld the bylaw change, and Airgas requested an expedited appeal.
On November 3, 2010, the Delaware Supreme Court heard the Airgas appeal and on November 23rd reversed the lower court, concluding that the attempted bylaw change was invalid because the board members’ three-year terms were inappropriately shortened, which amounted to removing the board members without cause, which in turn could only be accomplished by a supermajority vote of 67%, not the simple majority that had supported the bylaw change.
On December 22, 2010, Airgas rejected Air Products’ “best and final offer” of $70 per share. Airgas called the $70 offer “clearly inadequate,” and said the company was worth $78 per share.
Before the Delaware Court of Chancery now is Air Products’ request that the Court invalidate the Airgas shareholder rights plan, commonly called a “poison pill.” A poison pill automatically dilutes the holdings of a suitor that accumulates a certain number of shares, in the case of Airgas the threshold is 15%. The effect of a poison pill is to prevent a suitor from acquiring the company without the board’s approval. However, courts will invalidate a poison pill if it is considered too harsh a remedy. This raises the question of when an offer is good enough that shareholders should be allowed to accept it.
The parties had presented evidence during the October trial as to whether the $65.50 offer was adequate. However, on December 23, Chancellor William B. Chandler III offered the parties a chance to provide additional evidence and argument as to whether Airgas may continue to assert its poison pill defense now that the Air Products offer has been raised to $70.
The supplemental hearing begins Tuesday January 25, 2011, and is expected to continue through Friday. Airgas must explain why its shareholders should be prevented from accepting the $70 offer, and Air Products must show why the $70 offer is adequate.
Air Products is represented by Cravath; Airgas by Wachtell Lipton.
In September 2010,
November 3rd, 2010 | Published in Air Products v. Airgas
Wachtel Lipton’s Ted Mirvis told the Delaware Supreme Court this morning in the oral arguments for Airgas v. Air Products that shareholders and directors can advance an annual meeting date, but not without limits, and not, as in this case, to set two annual meetings within four months, during the same fiscal year, with no new results or financial statements to review, but only to achieve the early removal of a staggered board director.
In response to the Justices’ questions, Mr. Mirvis conceded that the statute does not require that meetings be held 365 days apart, and that moving the meeting forward or backward for a month would almost certainly be reasonable. Mr. Mirvis considered whether moving an annual meeting from summer to winter might be justified by legitimate business purposes, but suggested that it would make no sense for Airgas, since the fiscal year did not change, and that was not in fact the motivation for the proposed change.
Cravath’s Gary Bornstein faced heavy questioning when he told the Justices that the proper legal analysis had to focus on the text of the charter, not the underlying policies. Nothing in the text of the charter or the statute, said Mr. Bornstein, required that the staggered terms be exactly or approximately three years. Instead, the language of the charter focused on “full terms,” and the legal inquiry should as well. It would be a dramatic change in the law, said Mr. Bornstein, to preclude corporations from determining the length of their directors’ terms.
In response to Justice Berger’s suggestion that the term “annual” seemed to suggest approximately a year, or yearly, and that the 13-month requirement maximum might be as easily interpreted to suggest an approximation of 12 months, rather than to merely set a maximum without a minimum, Mr. Bornstein responded that the purpose of the 13-month rule was to ensure directors’ responsiveness, not to set precise or approximate terms.
In rebuttal, Ted Mirvis pointed out that most corporations that have “full term” directors nonetheless in their shareholder communications characterize those directors as serving for “three years,” suggesting that the use of the “full term” language was not intended to allow truncation of an annual term. By contrast, if Air Products’ interpretation were accepted, said Mr. Mirvis, then a corporation would be precluded from moving its annual meeting from January to June, even if their fiscal year changed, because two meetings in the same calendar year would be prohibited.
October 29th, 2010 | Published in Air Products v. Airgas
The Delaware Supreme Court has approved CVN’s media application to webcast live the oral araguments before the Delware Supreme Court in Airgas’ appeal of the decision of Hon. Chancellor William B. Chandler III, in Air Products v. Airgas.
In the case below, the Court held that an Airgas by-law amendment sponsored by hostile suitor Air Products and setting an annual meeting just four months after the most recent annual meeting was not invalid. The effect of the amendment was to shorten the terms of three staggered-term board members whose terms would otherwise have continued for several additional months.
The Court of Chancery concluded that “annual” did not have to be construed as “separated by approximately twelve months,” but could mean “in separate calendar years.” Therefore, the staggered board terms were not impermissibly shortened by the new annual meeting date, and the by-law moving the date did not require a supermajority to be effective.
Chancellor Chandler determined that neither Delaware law nor Airgas’ charter or by-laws required that annual meetings be separated by any minimum period of time, as long as they fall in separate years. However, the Chancellor noted, Airgas could have specified in its by-laws or charter that directors serve a minimum duration, by using such a phrase as “three-year terms,” in which case the amendment effectively shortening the terms would have required a supermajority, and therefore would not have been validly passed by a mere majority. However, Airgas did not so define its terms.
Airgas requested expedited appeal to the Delaware Supreme Court. Watch CVN’s live webcast of oral arguments before the Delaware Supreme Court in Airgas v. Air Products.
October 8th, 2010 | Published in Air Products v. Airgas
In Air Products v. Airgas, Wachtell Lipton’s Ted Mirvis urged the Delaware Chancery Court to declare invalid the Airgas by-law calling for a January shareholders meeting. Mirvis argued that two meetings four months apart could not actually both be “annual meetings.” “Annual” means a year apart, not just in different calendar years.
Moreover, said Mr. Mirvis, the various Delaware corporations’ staggered board charters that characterized the director terms as “until the next annual meeting” were using “annual meeting” as a term of art or an accidental phrase, and that the actual and intended practice, as described in those companies’ SEC filings, was to set annual terms. A by-law change cannot end a staggered board member’s term, according to Mr. Mirvis, and the proposed by-law had no other purpose than to gut Airgas’s staggered board.
Cravath’s Gary Bornstein told the court that the shareholders are granted the right under this company’s charter to change the date of the annual meeting. There was nothing unclear about the phrase “annual meeting,” and the Court should not ignore the words in the charter.
The meaning of “annual,” Mr. Bornstein continued, was “once per year.” In real life, annual visits or daily calls do not all have to be at the same hour or on the same holiday. Finally, the Airgas by-laws even anticipate the possibility that an annual meeting may not be twelve months apart. If Airgas had wanted an impregnable defense, they could have written that, said Mr. Bornstein, but they did not. And it could not be the case that once an annual meeting date is set, it must continue to be held in the same month forever.
October 6th, 2010 | Published in Air Products v. Airgas
The Air Products v. Airgas trial returned to “public” mode this afternoon with the testimony of Airgas COO Michael Molinini, who discussed the commercial gas business, and Airgas’ competitors.
Mr. Molinini said he understood that Air Products was sorry they had sold their packaged gas business because packaged gas buyers of cylinders would eventually become bulk purchasers, which gave Airgas more customer leads than a company like Air Products, whose limited product offering of Oxygen, Nitrogen, and Argon, which he compared to “chocolate, vanilla, and strawberry,” was inadequate to attract new customers. Mr. Molinini also described why SAP would be a transformational technology for Airgas, specifically because of the role of Airgas’s packaged products.
October 5th, 2010 | Published in Air Products v. Airgas
Airgas CEO Peter McCausland took the stand Tuesday afternoon in Airgas v. Air Products. Mr. McCausland testified that he never asked whether the offer on the table was Air Products’ “best and final,” and he did convey that Airgas was essentially not for sale.
Mr. McCausland agreed that recessions provide good opportunities to complete acquisitions on favorable terms, if you can find a willing seller.
McCausland testified to his belief that the by-law removing the staggered board would shift bargaining power to Air Products was illegal. McCausland stated that he took the vote as a message to Air Products to “stay in the game,” and not as a disagreement with Airgas’s resistance to Air Products’ offers.