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,
December 2nd, 2010 | Published in Securities
In Kahn v. Student Loan Corporation, Vice-Chancellor Travis Laster refused to enjoin Citi Group’s sale of Student Loan Corporation (SLC) for $600M. Citi owned 80% of SLC.
Representing the minority shareholders, Ethan Wohl, of-counsel to Labaton Sucharow, told the Court that Citi had impaired the value of SLC before the sale through its lending practices, rather than dressing SLC up for sale, because Citi’s interests as majority shareholder and obligor diverged from the minority shareholders’ equity interests. “This was the worst possible time to try to sell this business. Citi did it for its own personal reasons…and took a $200M haircut to accomplish the sale rather than keep the assets on their books.“
Although Citi had claimed that the sale price was at a premium to SLC’s (allegedly depressed) stock value, Mr. Wohl called premium-to-market pricing analysis “a sham.” According to Mr. Wohl, Citi was really trying to take cash out of the company, to the detriment of SLC’s stock price and to the interests of the minority shareholders.
Even though Citi had the right as a lender to withdraw its subsidiary’s funding, Mr. Wohl said, as a controlling entity Citi had a fiduciary duty and was bound by a standard of fairness in how it dealt with the subsidiary’s minority shareholders. There was no evidence in the record that SLC had become a bad credit risk or that continued lending would be unprofitable, which might justify a threat to terminate funding by Citi.
For Citigroup, Skadden Arps’ Edward Welch told the Court that Citi had spent two years trying to sell SLC — there was no fire sale. Further, Citi’s lending to SLC was provided at market rates, and in fact SLC’s interest expense dropped over time. SLC was not, said Mr. Welch, impaired by Citi’s lending behavior. The suggestion that Citi was trying to impair the value of SLC after trying to sell it for two years, said Mr. Welch, was “fantasy.”
For Student Loan Corporation, Morris Nichols’ Ken Nachbar argued that the funding documents did not impair SLC’s value because the loan obligation would not survive the acquisition. Mr. Nachbar reminded the Court that Citi did not withdraw funding or provide funding at greater than the market rate, and Citi had not duty to extend below-market funding indefinitely. Therefore, Citi could not have breached any duty. The stock holders were getting a “fantastic deal,” said Mr. Nachbar, “and they should be celebrating, not suing.”
Vice Chancellor Laster refused to either enjoin the sale or dismiss the complaint, and instead scheduled a trial on the matter for June 6-8, 2011. The Court concluded that the plaintiffs had a viable claim, but that even were they to prevail at trial, money damages would be an adequate remedy.
Yucaipa requests that Barnes & Noble’s poison pill be declared invalid. According to Yucaipa, Barnes & Noble’s largest shareholders, the Riggio family (including Barnes & Noble’s chairman Leonard Riggio), intended to entrench their control of the corporation and had used Barnes & Noble as a “personal piggy bank.”
Mr. Burkle described the circumstances leading to Yucaipa’s investment in Barnes & Noble, why Yucaipa increased its holdings, and Yucaipa’s response to Barnes & Noble’s implementation of a poison pill.
According to Mr. Burkle, Yucaipa wanted to be able to purchase as many shares as were owned by the Riggio family, Barnes & Noble’s largest shareholder. Mr. Burkle also wanted Barnes & Noble to add independent directors.
Mr. Burkle suggested that the terms of the poison pill were ambiguous as to whether conversations among shareholders might constitute a stockholder “agreement” that would trigger the pill, with “draconian” consequences, thus preventing an effective proxy challenge. According to Mr. Burkle, even Barnes & Noble’s own attorneys could not specify when some conversations might trigger the pill.
Vice Chancellor Strine asked Mr. Burkle whether his goal in the conversations was to negotiate deals with shareholders to support his proposed slate. Mr. Burkle said that he understood that he could ask shareholders for input, but was worried that if a shareholder responded by suggesting a potential director, and Mr. Burkle subsequently added that director, it might be considered a deal. Therefore, shareholder discussions could be risky.
July 7th, 2010 | Published in Securities
In the case below, Vice Chancellor Noble issued a declaratory judgment recognizing the validity of Selectica’s poison pill, or shareholder rights agreement, which had a 4.99% ownership threshold.
When the poison pill was triggered, Selectica was preparing for a potential sale, and Selectica considered its $160M in NOLs to be an important asset for potential buyers.
Vice Chancellor Noble concluded that Selectica’s Board reasonably understood that Trilogy and its subsidiary Versata, which competed with Selectica, seriously threatened to impair the value of Selectica’s NOLs for their own advantage, and that the NOLs were worth preserving.
On appeal to the Delaware Supreme Court, Trilogy and Versata argue that (1) Selectica’s board did not undertake a reasonable investigation prior to adopting the NOL poison pill; and (2) Selectica’s poison pill was preclusive because it effectively prevented a successful proxy challenge.
[Images are from the case below in the Delaware Court of Chancery, Selectica v. Versata.]
May 27th, 2010 | Published in Securities
Vice Chancellor J. Travis Laster denied a minority shareholder request to enjoin the controlling shareholders’ acquisition of the minority shareholders’ shares. The Court concluded that although the structure of the transaction could be reasonably questioned, the availability of monetary damages would provide an adequate remedy to the plaintiffs.
The Delaware Corporate and Commercial Litigation Blog has all the details.
May 25th, 2010 | Published in Securities
In CNX Gas v. CONSOL Energy, CVN webcast the CNX minority shareholders’ challenge to CONSOL Energy’s attempt to acquire the remaining shares of CNX (16.7% @ $38.25 per share) that it did not already own.
CONSOL already held a controlling interesting in CNX gas. Investor T. Rowe Price was CONSOL’s third-largest shareholder, and also held shares in CNX.
According to the plaintiffs, CONSOL’s negotiation with T. Rowe Price resulted in a too-low tender because T. Rowe Price was sufficiently hedged on the buy-side that it was inadequately concerned with price.
According to the Wachtel Lipton’s Paul Rowe, there was no scheme to cap the price, and the price was not an issue because the controlling shareholder made a non-coercive offer with full disclosure. In any case, there was ample evidence that T. Rowe Price had adequately represented the interests of the CNX Gas shareholders.
An injunction was not warranted, according to Skadden Arps’ Robert Saunders, regardless of the likely result on the merits, because the plaintiffs had failed to show a risk of irreparable harm — money damages after a trial on entire fairness could adequately address any harm. Further, the balance of equities could not favor the minority shareholders’ thwarting a premium offer that was the only offer on the table.