Canada: Delaware Chancery Court Upholds Use Of The Airgas Poison Pill In Air Products And Chemicals, Inc. V. Airgas, Inc.

On February 15, 2011, the Delaware Court of Chancery issued its opinion in Air Products and Chemicals, Inc. v. Airgas, Inc. et al.1 upholding the use of Airgas's shareholder rights plan (or "poison pill") in the closely watched contest for control of Airgas, Inc. In a ruling described by the Chancellor as being constrained by Delaware precedent, the Court upheld the Airgas board's decision not to redeem the pill even though the offer had been outstanding for over a year and all parties agreed that the stockholders had the information reasonably necessary to make an informed decision on whether to accept the tender offer. Air Products makes clear that until such time, if any, as the Delaware Supreme Court rules otherwise, Delaware corporate boards will have the right to "just say no" (although not to "just say never") to an inadequate tender offer if the determination is made in good faith, after reasonable investigation and in reliance on the advice of outside financial and legal advisors.

The Airgas board had, on a number of occasions, unanimously rejected the offers made by Air Products, including its "best and final" offer of $70 per share. After a proxy contest at the September 2010 annual meeting, three independent Air Products nominees were elected to the Airgas board. All three new directors, who promised to take a "fresh look" at the offer (but not necessarily to vote in favor of accepting the offer), also concluded, following a number of board meetings and based on the advice of outside advisors, that the offer of $70 per share was indeed inadequate.

The Court reviewed the Airgas board's actions under the standard set out over 25 years ago in Unocal Corp v. Mesa Petroleum Co.2 The Chancellor held that the Airgas board acted reasonably and in good faith in perceiving that the "clearly inadequate" tender offer posed a threat to the company. The Court noted that "[t]he presence of a majority of outside independent directors coupled with a showing of reliance on advice by legal and financial advisers 'constitutes a prima facie showing of good faith and reasonable investigation.'"3 The Airgas board had consulted with three financial advisors (two hired by Airgas's board initially and the third at the request of the Air Products nominees) to confirm its valuation of the company based on management's long-term plan and, as noted above, the newly elected Air Product nominees reinforced the validity of the board's position by unanimously voting to retain the pill.

In determining that the Air Products offer posed a cognizable threat to the company, the Court noted that while the offer itself was not structurally coercive, a large percentage (almost half) of the Airgas stockholders were merger arbitrageurs who had acquired the stock at a low price when Air Products first announced its interest in acquiring Airgas, and therefore stood to make a significant return on their investment even on a "low ball" bid. Based on this, the Court found sufficient evidence that a majority of stockholders might be willing to accept the Air Products offer regardless of the Airgas board's view that the price was inadequate. Moreover, the Court would not second guess the Airgas board's reasonable, good faith decision not to put the company up for sale at that particular time. According to the Court, a significant aspect of the threat was that if the Airgas board were ordered to redeem the rights plan, it could be forced into "Revlon mode" to maximize shareholder value in the short term by putting the company up for sale, even after having determined that this was not in the best interests of the company and its stockholders.

The Court also held that Airgas's defenses were reasonable in light of the threat posed and that those defenses were neither preclusive nor coercive. Based on the Delaware Supreme Court's decision in Versata Enterprises Inc. v. Selectica, Inc.,4 the Court confirmed that Airgas's defensive measures - the combination of a staggered board and a sustained pill - were not preclusive or coercive. Even if these defensive measures significantly delayed Air Products from obtaining control of the Airgas board, the measures were not preclusive so long as obtaining control of Airgas at some point in the future was "realistically attainable" for Air Products.

The Chancellor noted that because a predetermined time limit would take away a poison pill's effectiveness, a reasonable board need not redeem its pill within a specified period of time. Although the Airgas board's choices were limited to a low bid or no bid at all (given that Air Products had credibly made its final offer), under Delaware law a board may opt for the latter as long as the company had not "put itself up for sale."5

The Court concluded that "the power to defeat an inadequate hostile tender offer ultimately lies with the board of directors." Still, the Airgas board's purposes in implementing the defensive measures - sustaining an established long-term strategic plan and not putting up the company for sale prematurely - marked a key difference between a reasonable response ("just say no") and an impermissible one ("just say never"). The Court noted Airgas's detailed five-year plan, substantial investments and consistently improving financial results in finding that the Airgas board acted reasonably in simply maintaining the status quo in the face of an inadequate offer. Citing Delaware Supreme Court precedent, the Court stated that boards "are not obligated to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy."

Although bound by precedent to rule in favor of the Airgas directors, the Chancellor made clear in the decision that he believed, from a personal point of view, that the Airgas stockholders knew what they needed to know to make an informed decision and that Airgas's pill had served its legitimate purpose.6

The Chancellor's personal views aside, the Air Products ruling delivered a win to the pro-board camp in the continuing debate about the proper allocation of decision power between directors and stockholders in takeover contests. If an independent board, acting reasonably and in good faith, determines that the company is not for sale, then the board has the discretion to "just say no" for so long as the board believes that the price is inadequate.


1 C.A. No. 5249-CC (Del. Ch. Feb. 15, 2011).
2 493 A.2d 946 (Del. 1985).
3 Id. at 102-3 (citing Selectica, Inc. v. Versata Enters., Inc., 2010 WL 703062, at 12 (Del. Ch. Feb 26, 2010)).
4 5 A.3d 586 (Del. 2010).
5 The Court found that, on the facts, Airgas had not "put itself up for sale," but that if it had, the more stringent Revlon scrutiny would apply. Air Products, slip op. at 79-83, 91-92. See also, Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986); Paramount, 571 A.2d 1140.
6 For a related perspective, see Lucian Bebchuk, An Antidote for the Corporate Poison Pill, WALL ST. J., February 24, 2011, at A13. Professor Bebchuk argues that "investors still have recourse - because a poison pill is powerful only so long as the directors supporting it remain in place." According to some in the pro-shareholder choice camp, the proper response to the Airgas opinion is to accelerate the increasing trend of de-classification of corporate boards. Indeed, the strategy and outcome of the Airgas takeover battle would likely have been different had the Airgas board not been classified.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.