Delaware Court Upholds Use of Poison Pill Defense in Hostile Takeover Context

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The Delaware Court of Chancery recently reaffirmed the validity of the poison pill as a permissible defensive measure for Delaware corporations faced with a takeover proposal found to be inadequate by the target corporation’s board of directors. In Air Products & Chemicals, Inc. v. Airgas, Inc., Chancellor Chandler declined to require the board of Airgas, Inc. to redeem the company’s poison pill in the face of an all-cash public tender offer by market competitor Air Products and Chemicals, Inc. The Court held that while a board of directors cannot “just say never” to a sale of the company, the board can implement defensive measures to prevent consummation of such a transaction if it is “acting in good faith, after reasonable investigation and in reliance on outside advisors” and can show that an unsolicited takeover bid poses a “legitimate threat to the corporate enterprise.” The ruling is particularly significant since it addresses the delicate issue of the allocation of power between directors and stockholders, with the Court, under these facts, concluding that the power to defeat an inadequate hostile tender offer ultimately lies with the board.

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