“It is abundantly clear that the Airgas Board is thoroughly entrenched in its position, so we have decided to withdraw our offer and move on,” John E. McGlade, Air Products’ chairman, said yesterday in an e-mailed statement.
Air Products had pursued Radnor, Pennsylvania-based Airgas for more than a year. Delaware Chancery Court Judge William B. Chandler III yesterday rejected Air Products’ claim that Airgas’s poison-pill defense was flawed because it gave directors too much power to deflect offers for the company.
“The board’s actions do not forever preclude Air Products, or any bidder, from acquiring Airgas or from getting around Airgas’s defensive measures if the price is right,” Chandler said in a 153-page ruling.
Air Products, based in Allentown, Pennsylvania, raised its bid on Dec. 9 to $70 a share from $65.50. Airgas officials repeatedly rejected Air Products’ advances, claiming the company is worth at least $78 a share. Airgas’s board turned down the latest offer, which Air Products executives called their “best and final” bid, on Dec. 22.
“The Airgas board of directors has done a great disservice to Airgas shareholders by never allowing them to decide for themselves whether they want to accept our $70 per share all- cash offer,” McGlade said. “Air Products has many other compelling growth opportunities around the world that we are continuing to pursue.”
Air Products is the second-biggest U.S. industrial-gases producer behind Praxair Inc. The company’s offer for Airgas, made public on Feb. 4, 2010, ranks as the eighth-longest-running hostile takeover offer in the U.S. since Bloomberg started tracking the deals more than a decade ago. Oracle Corp.’s 2003 bid for PeopleSoft Inc., which dragged on for more than 1 1/2 years, holds the record.
Airgas fell $2.98, or 4.7 percent, to $60.75 at 6:40 p.m. after the close of New York Stock Exchange trading yesterday. The shares earlier dropped as much as 5.3 percent to $60.34 in after-hours trading.
The shares may decline to less than $60 as investors who bet on an Air Products takeover sell their stakes, said Thomas L. Hayes, a Minneapolis-based analyst at Piper Jaffray Cos. Airgas may start a buyback to buoy the stock, said Hayes, who rates Airgas “overweight” and doesn’t rate Air Products.
Chandler’s ruling reinforces the vitality of the poison- pill defense, said Charles Elson, a finance professor at the University of Delaware who runs the school’s Weinberg Center for Corporate Governance. Such defenses, designed to make takeovers prohibitively expensive, have been upheld by the Delaware Supreme Court in recent years as a legitimate tool for directors seeking to negotiate the best price for investors, Elson said.
“I think you’ll see more of a push to end staggered terms for directors rather than attacks on poison pills as a result of this decision,” Elson said in a phone interview.
Air Products argued in court filings that Airgas’s use of staggered director terms, which limit the number of board members up for election at any one time, in combination with the pill amounted to overkill. Airgas officials refused to deactivate the poison pill, saying in court filings that the company wasn’t being properly valued by Air Products.
Chandler said the poison pill “served its legitimate purpose” in helping Airgas directors negotiate a higher price. He refused to second-guess the board’s judgment in maintaining the defense and rejecting a bid it saw as too low.
“As the Supreme Court has held, a board that in good faith believes the hostile tender offer is inadequate may properly employ a poison pill as a proportionate defensive response to protect its shareholders from a low-ball bid,” Chandler wrote.
Airgas officials were pleased with Chandler’s ruling, Chief Executive Officer Peter McCausland said in an e-mailed statement.
“Airgas remains steadfast in its belief that Air Products’ offer is clearly inadequate,” McCausland said. “It has always been our objective to create value for our stockholders, and we remain committed to achieving that goal.”
Airgas shares won’t be punished as much as they would have been a few months ago because the economy has improved the company’s prospects, Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a telephone interview.
Air Products’ shares may gain from the end of its pursuit of Airgas, said Alexander, who rates Air Products “buy” and Airgas “hold.” Air Products rose 78 cents to $91 at 6:54 p.m. in after-hours trading yesterday.
“This lets people focus on the underlying fundamentals of the company,” Alexander said. “The big question now is, what does Air Products do with their balance sheet?”
The case is Air Products and Chemicals Inc. v. Airgas Inc., CA5249, Delaware Chancery Court (Wilmington).
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