Air Products, Airgas Continue Wrangling Over Poison Pill

Airgas Inc. (ARG) Wednesday maintained it is worth markedly higher than the $70-a-share "best and final" offer from hostile rival Air Products & Chemicals Inc. (APD), while Air Products continued to argue the Airgas poison pill unfairly prevents Airgas shareholders from deciding for themselves.

Wednesday's testimony in Delaware's Court of Chancery marked day two of what's expected to be a three-day trial to decide Air Products' challenge of the Airgas pill, or shareholder-rights plan, which effectively prevents Air Products from consummating its tender offer. The judge in the case has indicated his ruling will come soon after the trial ends, and observers aren't ruling out a decision Thursday.

Delaware has mostly upheld challenges to pills since they came into wide usage in the 1980s, and the ultimate result of this trial will have broad implications in how targets defend against unwanted takeovers and how would-be acquirers attempt to defeat those defenses.

Investment banker David A. DeNunzio of Credit Suisse in testimony predicted Airgas shares would surpass the Air Products offer price by next year, thanks to continued earnings improvement. The Radnor, Pa. company's stock could be worth from the mid-$70s to mid-$80s, he told Chancellor William Chandler.

Credit Suisse is the most recent of three investment banks retained by Airgas, whose independent views all support Airgas's contention that it's worth at least $78 a share in a takeover. That view is based on a standalone value for Airgas in the low $60s plus a reasonable premium that would be customary in a strategic acquisition.

Air Products says Airgas leaders are unreasonably keeping the pill in place, even though they know a majority of shareholders would take the $70 offer. The pill has warded off the hostile tender for more than a year. That's long enough, Air Products argues.

Airgas doesn't dispute that holders would tender more than half the company's shares into the Air Products offer, but feels the price is nonetheless inadequate and the acceptance would be driven by merger arbitrageurs. The Airgas board maintains fiduciary duty compels it to keep the question from going to the shareholders.

Arbitrageurs are short-term investors, uninterested in a proper valuation and simply motivated by securing a deal in short order, Airgas contends. Arbitrageurs began piling into Airgas stock after Air Products made its initial offer public last February, and their collective ownership was recently 41% of the stock, Airgas Chief Executive Peter McCausland testified Tuesday, down from as high as 55% previously as the certainty of a deal has waned in recent weeks.

Air Products Chief Executive John McGlade said Tuesday that a loss in court means the company is "moving on and pursuing our other alternatives."

"We weren't talking nickels and quarters here," Credit Suisse's DeNunzio said, commenting on the spread between what he thinks Airgas is worth and the price Air Products says it's willing to pay. "We had pretty easily concluded that the $70 a share was inadequate."

John Clancey, who joined the Airgas board in September after being put up for election by Air Products, said Airgas stock, "if and when this is behind us, will be trading in the $70s." Clancey also intimated that Air Products, of Lehigh Valley, Pa., could boost its offer for Air Gas.

"We play 'best and final.' Our customers play 'best and final,'" Clancey said. "'Best and final' is normally a cliche that gets you into the finals so that you can take your price up or take your price down."

Airgas stock closed down fractionally at $61.97, a signal investors believe Airgas will succeed in fending off Air Products.

"Now is not the right time to sell," Clancey said.

Chancellor Chandler questioned witnesses about the readiness of Airgas shareholders to evaluate Air Products' tender offer. One justification for corporate defenses is that they allow shareholders time to gather and weigh information.

"I think you'd have to conclude that this shareholder base is well informed," DeNunzio said.

-By Peg Brickley, Dow Jones Newswires; 215-462-0593; peg.brickley@dowjones.com, and Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

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