Delaware Chancery Court Upholds Airgas Board’s Refusal To Redeem Poison Pill

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In a landmark ruling this week, the Delaware Court of Chancery forcefully affirmed the right of a board of directors to maintain a “shareholder rights plan” —more commonly referred to as a “poison pill”— in response to an all-cash tender offer so long as the board determines, in good faith and in accordance with its fiduciary duties, that the offer is inadequate. In Air Products and Chemicals, Inc. v. Airgas, Inc., No. 5249-CC (Del. Ch. Feb. 15, 2011), Chancellor William B. Chandler III explained that under existing Delaware Supreme Court precedent, a corporate board, while subject to “rigorous judicial fact-finding and enhanced scrutiny” of its use of the pill, can maintain the pill to prevent shareholders from accepting a tender offer that the board believes does not adequately value the company, even if that offer is not “structurally coercive.” The Air Products decision reaffirms the scope of a corporate board’s managerial authority in responding to tender offers it views as contrary to the best interests of the corporation’s shareholders.

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