We are, of course, talking about Airgas v. Air Products & Chemicals, one of the most awaited and potentially most significant legal decisions in a generation. As the Delaware Corporate & Commercial Litigation blog points out, the opinion itself laid out what was at stake: “In essence, this case brings to the fore one of the most basic questions animating all of corporate law, which relates to the allocation of power between directors and stockholders….[I]n the context of a hostile tender offer, who gets to decide when and if the corporation is for sale?
Yet in the end, the Delaware Chancery Court’s decision to uphold the Airgas antitakeover strategy known as the poison pill really wasn’t all that much of a surprise. Nearly a month ago UCLA law professor Stephen Bainbridge had blogged that the court really had no other option (case cites deleted):
“The Delaware Supreme Court upheld the validity of the pill in Moran v. Household Int’l Inc. The Delaware supreme court subsequently invoked the principle of stare decisis to reject a post Moran challenge to poison pills: “It is indisputable that Moran established a board’s authority to adopt a rights plan.” Account v. Hilton Hotels Corp. “To recognize viability of the [plaintiff's] claim would emasculate the basic holding of Moran, both as to this case and in futuro, that directors of a Delaware corporation may adopt a rights plan unilaterally.”
And indeed, Bainbridge is taking a victory lap:
“First, as I predicted, Chandler upheld the poison pill as a concept.
Second, the case finally gives us a clear statement of Delaware law to the effect that: “A board cannot “just say no” to a tender offer.” I have argued for years that Delaware law did not allow a board to just say no.
Third, Chandler’s conclusion that “the answer must be that the power to defeat an inadequate hostile tender offer ultimately lies with the board of directors” is consistent with the argument I have made over and over.”
While anticlimactic, M&A lawyers and deal watchers still are scurrying to deconstruct Chancery Court Judge William Chandler’s decision. Boston College Law’s Brian Quinn at the M&A Law Prof Blog suggests, “Download it, get a cup of coffee, close the door, and start reading this primer on the pill, Unocal, and “just say no” defense.” His first impression? “For the time being, structural coercion–my stockholders are too stupid to know what’s good for them–survives.”
The New York Times’ Deal Professor, Steven Davidoff, agrees the decision is one for the takeover law canon, while also agreeing that Chandler’s hands were essentially tied:
“[I]t appears that the judge thinks that substantive coercion is a straw man, which is too vague to be used and can serve to protect an entrenched board. The lower court opinions he cites support this position. By citing them Chancellor Chandler passive aggressively rebuts the contrary position of the Delaware Supreme Court….The judge contends that when takeover contests reach an end-stage, then it is time and the courts should step in to ensure that there is a sale process. But the Supreme Court does not agree….Against this road-block, Chancellor Chandler refuses to go forward….”
