In Air Products & Chemicals, Inc. v. Airgas, Inc., et al., C. A. 5249-CC (Del. Ch. Dec. 23, 2010), read letter ruling here, Chancellor Chandler issued a letter ruling today rejecting Airgas’s argument that the issues that were already tried to the Court are moot. The Court determined that there was an issue ripe for decision and that a supplemental evidentiary hearing was warranted before the Court could rule with respect to the $70 offer. Prior decisions and developments in this case are highlighted on this blog here. Bloomberg’s article about today’s decision is available here.
This summary was prepared by Kevin F. Brady of Connolly Bove Lodge and Hutz LLP.
By way of brief background, on December 14, 2010, the Court issued a short letter ruling regarding letters the Court received from recently-elected directors of Airgas and some post-trial issues regarding the record and certain exhibits. Read letter ruling here. The Court also raised a question at that time as to whether the core issues in the case had been mooted by certain activities. The defendants had said that “in light of Air Products’ increased offer of December 9, 2010, to acquire Airgas for $70 per share, on which, as of [December 14, 2010], the Airgas board has not yet made (to the Court’s knowledge) a determination, ‘Air Products is asking the Court to invalidate a Board decision that has not even been made and for which no record exists.’” Air Products and the Shareholder Plaintiffs took the opposite view arguing that “there is still in fact a live controversy—whether Air Products’ now-$70 all-cash offer justifies keeping Airgas’s poison pill in place. As I understand plaintiffs’ position(s), the increased offer in effect merely moves the price point for the Unocal “threat” analysis; it does not “moot” or otherwise dispose of the issues presented at trial. In other words, has Airgas’s poison pill served its purpose and, therefore, “[a]t this stage of the process, there is no ‘threat’ that justifies the continued maintenance of the pill.”
As a result of the above, the Court asked defendant Airgas (in its December 14 ruling) to tell the Court by December 21, 2010 when the Airgas Board planned to make a determination as to the $70 offer and when the annual meeting would be held. Airgas filed a letter response on December 21, 2010, and on December 22, 2010, it filed a Schedule 14D-9 “announcing that the Airgas board had met to consider Air Products’ revised $70 per share offer and unanimously recommend[ed] that Airgas stockholders reject the offer.” After reviewing the submissions, the Court decided that core issues are still alive and are not moot.
The Court stated:
In short, on the mootness issue, the underlying dispute—fundamentally, whether Airgas can continue to maintain its poison pill in the face of an all-cash, structurally noncoercive offer—is as live a controversy today as it ever was. In considering the “threat” analysis under Unocal, the price point has moved from $65.50 to $70 per share. The core question before me, however, remains essentially unchanged, and any alleged change in the underlying facts can be remedied by supplementing the record such that both defendants and plaintiffs have had “the opportunity to develop and present a full record” as to the $70 offer. And as far as ripeness, the Airgas board has now responded to Air Products’ $70 offer. Specifically, “the Board unanimously concluded that the $70 per share offer is clearly inadequate and that the value of Airgas in a sale, at this time, is at least $78.00 per share, in light of the Board’s view of relevant valuation metrics.” In support of its recommendation that Airgas stockholders reject Air Products’ current offer, the Airgas board consulted with its financial and legal advisors, and obtained “the written opinions of Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co., as of December 21, 2010, regarding the inadequacy, from a financial point of view, of the price offered by Air Products.”
The Court agreed to allow the parties to take limited discovery on the $70 offer (i.e., both Air Products’ position that $70 is their “best and final” offer and the Airgas board’s position that $70 is inadequate), the financial advisors’ reports on that offer, and any other issues the parties believe should be considered. The Court also noted that the parties will have the opportunity to supplement the record “so as to provide the Court with the necessary factual record concerning the Airgas Board’s consideration of the $70 offer, and subsequent determination of inadequacy, including, for example, whether the Board acted in good faith on a fully informed basis and in reasonable reliance on its advisors in evaluating the new offer and whether the directors reasonably concluded that Air Products’ offer [continues to represent] a threat.” This additional discovery must be completed by January 21, 2011 with the Court to schedule an evidentiary hearing soon thereafter (possibly starting on January 25, 2011) followed by closing arguments.