Protecting Shareholder Value
"Airgas remains steadfast in its belief that Air Products' offer is clearly inadequate and is intended only to transfer the value of Airgas to Air Products at a price that does not appropriately compensate our stockholders. It has always been our objective to create value for our stockholders, and we remain committed to achieving that goal."
Airgas’ Board of Directors and Management team have always been committed to creating shareholder value through the disciplined execution of core business strategies and the integration of acquisitions into the Company’s industry-leading platform. When faced with a highly opportunistic, unsolicited takeover attempt from industrial gas producer Air Products over the course of 18 months from late 2009 through early 2011, the Airgas Board remained steadfast in its commitment, successfully protecting its shareholders from a grossly inadequate offer in the face of intense media and legal scrutiny.
After the Board’s initial private rejections of Air Products’ offer, Air Products responded aggressively, launching a tender offer in February 2010 at $60 per share, making negative attacks in the press, and pursuing meritless litigation in an attempt to force the Airgas Board to redeem the Company’s Shareholder Rights Plan. This plan, colloquially referred to as a "poison pill," was designed in the early 1980s to force corporate raiders into a dialogue with a company's board, rather than its shareholders, whose ranks could swell with arbitrageurs — short-term, deal-oriented traders — in the days following the announcement of a takeover bid. History has shown that such investors, with an interest only in short-term gains, can control the outcome of takeovers, at the expense of long-term investors.
Over the next 10 months, Air Products would raise its offer to $63.50, then to $65.50 -- increases that failed to keep pace with the overall market’s improvement and with Airgas’ debt pay-down, and clearly were not reflective of Airgas’ improving earnings during that time -- before settling on a “best and final” offer of $70 per share in December 2010. During that time, Air Products would also nominate, and Airgas shareholders would elect, three directors to the Airgas Board.
Believing strongly that Air Products’ interests were diametrically opposed to those of Airgas’ shareholders and, in keeping with its fiduciary duty to all Airgas shareholders, the Airgas Board, including the three directors nominated by Air Products, repeatedly rejected the unsolicited offers. The Board was convinced that in light of Airgas’ strong performance, outstanding prospects, and unique industry position, as well as the enormous financial benefits to Air Products of an acquisition of Airgas, the offers were not close to the right price for the sale of the Company.
Despite Air Products’ assertions to the contrary, the Board was open to negotiation, but only if it believed such a negotiation would result in an appropriate price for Airgas shareholders -- which the Airgas Board stated in a December 2010 letter was at least $78 per share at that time.
"We believe it is clear that Air Products' effort to force a stockholder meeting in January, coupled with its threat to terminate its offer, is simply a heavy-handed attempt to steal Airgas by not offering full and fair value to our stockholders.”
A Landmark Decision
Air Products attacked the legality of the Shareholders Rights Plan and asked the Delaware Court of Chancery to rule on a fundamental question in American corporate law: Can a board of directors, acting in good faith and with a reasonable factual basis for its decision, when faced with a structurally non-coercive, all-cash, fully financed tender offer directed to the stockholders of the corporation, keep a poison pill in place so as to prevent the stockholders from making their own decision about whether they want to tender their shares -- even after the incumbent board has lost one election contest, a full year has gone by since the offer was first made public, and the stockholders are fully informed as to the target board’s views on the inadequacy of the offer?
In his February 15, 2011, ruling, Chancellor William B. Chandler III determined that the Airgas Board had indeed "acted in good faith and in the honest belief that the Air Products offer at $70 per share was inadequate." The Shareholder Rights Plan was found to be consistent with Delaware case law, and the Court recognized the importance of long-term value creation as a critical focus of corporate enterprises. Chandler dismissed with prejudice all requests for relief against the Airgas Board. As a result of the decision, Air Products withdrew its offer that same day.
“As this case demonstrates, in order to have any effectiveness, pills do not -- and cannot -- have a set expiration date. To be clear, though, this case does not endorse ‘just say never.’ What it does endorse is Delaware’s long understood respect for reasonably exercised managerial discretion, so long as boards are found to be acting in good faith and in accordance with their fiduciary duties (after rigorous judicial fact-finding and enhanced scrutiny of their defensive actions). The Airgas board serves as a quintessential example.”
Chancellor William B. Chandler III
Under these circumstances, it is common for a target company’s stock price to fall dramatically when a would-be acquirer drops its bid, as short-term, deal-oriented shareholders run for the exits. In Airgas’ case, however, its stock price closed up 1% to $62.34 on the day following Air Products’ walk-away, proving that Air Products’ “best and final” offer presented virtually no compelling transaction premium to Airgas shareholders.
Time, too, has agreed with the Airgas Board’s view of valuation, as the Airgas stock price rose steadily in the months after the Court’s decision.