Chancellor William B. Chandler III of Delaware's influential Chancery Court seemed to be holding his nose when he did it, but he wrote a decision, released Tuesday, that upheld Airgas Inc.'s controversial defense against a hostile takeover by Air Products & Chemicals Inc.
Chandler said he was convinced that Airgas shareholders were well informed of the Radnor company's prospects and should have had a chance to vote on the $70-per-share cash offer from Air Products of Allentown, despite the Airgas board's view that the price was too low.
"That being said, however, as I understand binding Delaware precedent, I may not substitute my business judgment for that of the Airgas board," Chandler wrote in his 153-page decision in the closely watched case.
Again showing that he was unhappy with the way he was compelled to follow 25 years of Delaware Supreme Court rulings, Chandler wrote: "Although I have a hard time believing that inadequate price alone" poses a threat to the corporation, "under existing Delaware law, it apparently does."
Immediately after the ruling, Air Products dropped its $5.9 billion offer for Airgas, which distributes industrial gases and safety supplies nationwide. Air Products, one of the world's largest producers of industrial gases, coveted Airgas as a way to expand its reach to smaller customers.
Contrary to expectations, Airgas shares traded higher Wednesday, closing at $64.35, up 62 cents, or just under 1 percent. The expectation had been that the Airgas share price would drop sharply if the bid were withdrawn.
"That's bizarre," Charles M. Elson, a corporate-governance expert at the University of Delaware, said of the stock performance, which might be seen as a sign the buyout offer undervalued Airgas. Still, he said, shareholders should have been able to vote.
"The owners have the right to do whatever they want with their property," he said.
Another corporate-governance expert, John L. Reed, a lawyer in the Wilmington office of Edwards, Angell, Palmer & Dodge L.L.P., said a board's judgment was key in deciding what to do with a corporation, not the shareholders', because the board always has more information.
Reed also pointed out that "our law requires the board to come forward with a merger," rather than allowing shareholders to do that. "You need to defer to the board."
Chandler's decision ends a saga that began in October 2009, when Air Products chief executive John M. McGlade traveled to Airgas' headquarters to present a $60-per-share all-stock offer to his Airgas counterpart, Peter McCausland. The offer was rejected by the Airgas board as not even substantial enough to begin talks about a possible deal.
The takeover fight landed in Delaware's Court of Chancery, a key forum for corporate law, early last February, after Air Products went public with a cash offer of $60 per share for Airgas and still had made no progress with the board.
In a lawsuit, Air Products accused the Airgas board of directors of neglecting their fiduciary duty to shareholders by refusing to form a special committee to consider the buyout offer.
Air Products specifically wanted Chandler to force Airgas to cancel its "poison pill," an antitakeover strategy devised in the early 1980s to ward off lowball takeovers.
Investors in companies with poison pills cannot exceed a certain ownership percentage, typically between 10 percent and 20 percent, without triggering issuance of a large number of shares. That would make the takeover prohibitively expensive.
In ruling against Air Products, Chandler wrote: "The Airgas board, in proceeding as it has since October 2009, has not breached its fiduciary duties owed to the Airgas stockholders. I find that the board has acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate."
McCausland called the ruling a victory for Airgas shareholders and said he "took great comfort and pride and satisfaction in what [Chandler] said about the Airgas board and its fulfillment of its fiduciary responsibility."
McGlade, in a conference call with analysts, expressed a different view: "We believe the Airgas board has done a great disservice to the Airgas shareholders."
However, even McGlade's lead director on the Air Products board, William L. Davis, testified that "if an offer was made for Air Products that [he] considered to be unfair to the stockholders of Air Products . . . [he would likewise] use every legal mechanism available" to get an appropriate price, Chandler's ruling said.