Airgas Loses Effort to Drop Bylaw; Ruling May Speed Air Products Purchase
Airgas Inc., trying to fend off a $5.5 billion hostile bid from Air Products & Chemicals Inc., lost a bid to invalidate a new bylaw that shortens the date for the company’s annual meeting, paving the way for a takeover.
Delaware Chancery Court Judge William B. Chandler III yesterday ruled the bylaw, approved by Airgas shareholders last month, doesn’t improperly shorten directors’ terms on the industrial-gas company’s staggered board. Air Products may use the ruling to take control of Airgas at the January meeting.
While the ruling probably will be appealed, the presumption is that the decision stands, Mark Gulley, a New York-based analyst at Soleil Securities, said today in a telephone interview. Court testimony indicates Air Products would pay as much as $70 a share and Airgas would start negotiations at that price, he said.
“It would be in the interest of both parties to negotiate a friendly transaction,” Gulley said. He recommends buying shares of Air Products and rates Airgas “hold.”
Lawyers for Radnor, Pennsylvania-based Airgas had argued shareholders erred when they voted Sept. 15 in favor of the bylaw by Air Products, which moved up the date of Airgas’s annual meeting. It was backed by Air Products.
Investors also added three nominees backed by Allentown, Pennsylvania-based Air Products to Airgas’s board. Under the company’s staggered-board system, adopted to make takeovers more difficult, only some directors are up for election at one time.
Air Products will ask Airgas investors to add more of their nominees to the board at the January meeting, giving them control. The board could then drop anti-takeover protections that have been thwarting Air Products’s $65.50-a-share bid.
David Reno, an Air Products spokesman, and Airgas spokesman Andrew Siegel both declined to comment on Chandler’s ruling today.
Chandler’s ruling came at the conclusion of a week-long trial in Georgetown, Delaware, in Air Products’s lawsuit challenging Airgas’s refusal to consider the buyout offer. He’ll rule later on whether Airgas is violating legal duties to shareholders by brushing off Air Products’s overtures.
Airgas’s lawyers argued yesterday the company’s directors, elected to three-year terms, wouldn’t be able to serve their full stints on the board if the company’s annual meeting is moved to January from as early as April.
In his 41-page ruling, Chandler noted Airgas corporate charter “does not unambiguously define what is meant by full term or when the annual meeting must take place.”
Airgas’s bylaws do say the terms of directors up for election in 2011 expire at that year’s annual meeting, the judge said.
There’s no requirement under Delaware’s corporate statutes that Airgas provide a 12-month interval between annual meetings, Chandler said. The statutes allow the meeting to be set any time during the calendar year that directors and shareholder deem appropriate, he added.
“Directors and stockholders are free to specify when the annual meeting shall occur and they are free to change it as they see fit so long as they do not violate” Delaware’s corporate statutes, Chandler wrote.
Air Products’s push to have Airgas’s board move up the annual meeting in the context of a takeover fight doesn’t weaken the staggered-board defense, the judge added.
Corporate lawyers can redraft company’s charters and bylaws in a way to ensure directors don’t come up for re-election before they serve out their full terms, Chandler said.
“This is not the end of the world for staggered boards,” the judge said. “It is an easy fix if it needs fixing.”
The case is Airgas Inc. v. Air Products & Chemicals Inc., 5817, Delaware Chancery Court (Wilmington).