20 February 2011

Airgas/Air Products

Back when I was writing another blog, "Proxy Partisans," I chronicled among other continuing stories of corporate skullduggery the relationship between two Pennsylvania-based suppliers of industrial gas: Air Products (APD), of Allentown, and Airgas (ARG) of Radnor.

I suspended work on "Proxy Partisans" in October, but now it is necessary to continue that particular storyline here, because this rivalry has produced what may be a very important decision by the Delaware Chancery Court. Indeed, Deal Journal is calling it "one of the most significant legal decisions in a generation."

From the introductory portion of the decision: "This now very public saga began quietly in mid-October 2009 when John McGlad, President and CEO of Air Products, privately approached Peter McCausalnd, founder and CEO of Airgas, about a potential acquisition or combination. After McGlade's private advances were rebuffed, Air Products went hostile in February 2010, launching a public tender offer for all outstanding Airgas shares."

The offer was extended, and the price bumped up, throughout the subsequent year, so that at the time of the Chancery Court's decision the offer stood at $70 a share. It was fully financed and all cash.

The decision lays some stress on the all cash nature of the offer. Why? Presumably because an all-cash offer is less suspect in some sense than a share-swap, so that if the poison pill is not subject to judicial review even when its an all-cash offer, readers can infer that it will be likewise immune from such review when a stock swap is involved.

Another noteworthy fact: the court seems to sympathize with Air Products on policy grounds, but it says it is "constrained by Delaware Supreme Court precedents." So even in the absence of questions about financing or valuation, a board's judgment that the price offered is simply too low, and its concern that its shareholders will foolishly disagree with that, is reason enough to allow the poison pill effectively blocking the acquisition.

The inventor of the poison-pill-based takeover defense, Martin Lipton, ispredictably happy.

I am not. And I think that in his elation, Lipton rather mis-states the gist of the decision, which contained its own notes of regret about what the Chancellor felt he had to do.

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Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.