In Air Products v. Airgas, issued on February 15, the Delaware Court of Chancery declined to order the Airgas board to redeem the poison pill and other defenses that were preventing Air Products from moving forward with its long-running hostile tender offer, despite the court’s finding that a majority of Airgas’ shares were held by merger arbitrageurs and others who would likely tender into Air Products’ offer.
On a general level, the court found that “a [corporate] board that has a good faith, reasonable basis to believe a bid is inadequate may block that bid using a poison pill, irrespective of stockholders’ desire to accept it.” In effect, the court found that, while a board cannot “just say no” to a tender offer, without doing anything more, a board can steadfastly “say no” if it is “acting in good faith, after reasonable investigation and in reliance on outside advisors” and can show that the tender offer poses a “legitimate threat to the corporate enterprise.” In such a situation, the board can force a bidder to proceed via the corporation’s electoral process and endeavor to elect a board majority that would redeem the pill and allow the offer to proceed.
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