Air Products-Airgas Takeover Fight May Depend On Delaware Ruling

If $70 a share is indeed Air Products & Chemicals Inc.'s (APD) "best and final" offer for smaller rival Airgas Inc. (ARG), the proposed merger looks dead unless a Delaware judge makes a landmark ruling next month.

The Airgas board of directors on Wednesday "unanimously rejected" Air Products' bid and reiterated its contention that Airgas is worth "at least $78 a share" in a merger. It was the latest salvo in a more than year-long struggle between the two Pennsylvania-based industrial gas suppliers.

Delaware Chancellor William Chandler is set to rule in January on an Air Products challenge to Airgas's shareholder rights plan, or poison pill, which effectively prevents Air Products from taking control of Airgas, no matter how much support its $70-per-share tender offer garners.

Poison pills have mostly been upheld by Delaware courts over the years, despite numerous challenges. Chandler must weigh whether this one is a more egregious entrenchment of management -- to the detriment of shareholders -- than all of the other pills the Chancery Court has deemed acceptable. A ruling in favor of Air Products's challenge would color all subsequent poison-pill challenges in the state.

At the Airgas annual meeting in September, three Air Products nominees were elected to the Airgas board, and Airgas shareholders approved an Air Products measure that moved up the next Airgas annual meeting to January. Airgas challenged the measure to move up the meeting. Chandler sided with Air Products in that challenge, but his ruling -- and thereby the measure -- were overturned by Delaware Supreme Court.

Earlier this month, the three new directors nominated by Air Products expressed concern that the Airgas board was "misleading" shareholders by expressing board unanimity against the Air Products offer. Airgas retained Credit Suisse securities to provide a third financial advisor to supplement the opinions of Bank of America Merrill Lynch and Goldman Sachs & Co.

An Airgas spokesman on Wednesday said the trio has approved the latest press release "unanimously" rejecting the Air Products offer and claiming a minimum of $78 as a fair takeover price.

On Dec. 9, Air Products raised its bid to $70 a share, calling that its "best and final" offer, and extended the tender offer to buy Airgas until Jan. 14 to allow Chandler time to rule on the poison pill.

An Air Products spokesman didn't promptly respond to a request for comment Wednesday.

Airgas shareholders, now heavily populated by merger arbitrageurs who had looked to capitalize on a swift and richly valued deal, recently sent Airgas stock down 3.2% to $61.20 a share.

Last week, Eton Park Capital Management, which acquired over 7% of Airgas stock in an arbitrage play, told Airgas to either allow shareholders to accept the $70 offer or "establish a clearly defined process designed to achieve greater value through an alternative control transaction."

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

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