Airgas Inc., trying to fend off a $5.5 billion hostile bid from Air Products & Chemicals Inc., should be able to cancel a new bylaw that improperly shortens directors’ terms on its staggered board, a lawyer argued.
Lawyers for Radnor, Pennsylvania-based Airgas contend shareholders erred when they voted Sept. 15 in favor of the bylaw backed by Air Products, which moved up the date of Airgas’s annual meeting. Investors also added three Air Products nominees to the Airgas board. Under a staggered-board system, only some directors are up for election at one time.
“A bylaw certainly cannot shorten the term” of a director on a staggered board, Theodore Mirvis, a lawyer for Airgas, told Delaware Chancery Court Judge William B. Chandler III at a hearing today in Georgetown.
Chandler is presiding over the trial of Air Products’ lawsuit over Airgas’s refusal to accept a takeover offer of $65.50 a share. Air Products, based in Allentown, Pennsylvania, is the second-biggest U.S. industrial-gases producer behind Praxair Inc.
The judge agreed to hear Airgas’s arguments that the bylaw is aimed at allowing Air Products to take control of its rival’s board more quickly. The bylaw moved Airgas’s annual meeting to January from as early as April.
Chandler reserved his ruling on the meeting-date bylaw. Both Airgas and Air Products asked him to hand down a decision by Oct. 15 to allow time for them to prepare for a possible meeting in January, the judge said.
The judge said he planned to deliver “a decision faster” than the parties sought on the annual-meeting issue and its effect on staggered boards.
Airgas directors are elected to three-year terms under the staggered-board system, which is part of a “web of anti- takeover defenses” the company has erected, Air Products lawyers said in court filings.
Directors are entitled to “serve out their full terms” unless they are removed for cause, Mirvis told the judge today. The meeting-date change improperly shortens those terms, he said.
Moving the meeting to January also means Airgas would hold the equivalent of two annual meetings in the same fiscal year, Mirvis said.
“The word annual has to mean something,” the lawyer said. Airgas’s staggered board was designed to force acquirers to wait years to take control of the company, not months, Mirvis said.
Air Products’ lawyer countered that Delaware law authorizes shareholders to change companies’ bylaws and they aren’t restricted on the interval between annual meetings.
Airgas investors’ decision to change the bylaw was an “exercise of rights the shareholders have,” Gary Bornstein, an Air Products lawyer, told the judge. “It’s not a manipulation.”
Delaware corporate statutes don’t specify that the meetings be held 12 months apart, Bornstein said. Air Products contends that the meeting “has to happen once” a calendar year, he said.
Chandler noted that Air Products holds its annual meetings “about a year apart.”
Bornstein countered that Airgas has held annual meetings in the past within a “five-month window” and its directors gave themselves the flexibility under company bylaws to move around” the meeting date in response to Air Products’ bid.
The cases are Air Products & Chemicals Inc. v. Airgas Inc., 5249, Delaware Chancery Court (Wilmington); and Airgas Inc. v. Air Products & Chemicals Inc., 5817, Delaware Chancery Court (Wilmington).
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