This action might not be possible to undo. Are you sure you want to continue?
5249-CC ) ) REDACTED VERSION ) Dated: February 3, 2011 ) ) ) )
IN RE AIRGAS, INC. SHAREHOLDER LITIGATION AIR PRODUCTS AND CHEMICALS, INC., Plaintiff, v. AIRGAS, INC., ET AL., Defendants.
SHAREHOLDER PLAINTIFFS’ MEMORANDUM IN RESPONSE TO THE COURT’S JANUARY 27, 2011 ORDER BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Mark Lebovitch Amy Miller Jeremy Friedman 1285 Avenue of the Americas New York, NY 10019 (212) 554-1400 Co-Lead Counsel ROBBINS RUDMAN GELLER & DOWD LLP Randall J. Baron A. Rick Atwood, Jr. David T. Wissbroecker 655 West Broadway, Suite 1900 San Diego, CA 92101 (619) 231-1058 Co-Lead Counsel Co-Lead Counsel and Plaintiffs’ Liaison Counsel Shareholder CHIMICLES & TIKELLIS LLP Pamela S. Tikellis (Del. ID No. 2172) Robert J. Kriner, Jr. (Del. ID No. 2546) A. Zachary Naylor (Del. ID No. 4439) Scott M. Tucker (Del. ID No. 4925) 222 Delaware Ave. P.O. Box 1035 Wilmington, DE 19899 (302) 656-2500
BARRACK, RODOS & BACINE Jeffrey W. Golan M. Richard Komins Julie B. Palley 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 19130 (215) 963-0600 Co-Lead Counsel
Dated: February 2, 2011
TABLE OF CONTENTS 1. Defendants Have Not Identified a Legally Cognizable Threat a. b. This Dispute is All About the Price The Airgas Shareholders Are Fully Informed and Capable to Decide Whether to Tender Reasonable Airgas Shareholders Could Presently Prefer the $70 Per Share Tender Offer Price There is No Prisoner’s Dilemma Delaware Law Adequately Protects Non-Tendering Shareholders 2 2 5
Even if the Tender Offer Does Constitute a Threat, Defendants Have Not Carried Their Burden to Show Permanent Maintenance of the Pill is Reasonable in Relation to that Threat a. b. c. The Pill is Preclusive The Ballot Box Offers No Alternative Policy Factors Favor Redeeming the Pill
15 16 20 21
The Court Should Grant the Relief Sought by Shareholder Plaintiffs a. b. c. d. e. Immediate Redemption of the Pill Section 203 and Article 6 Undertaking Required of Air Products Balance of the Equities Attorneys’ Fees and Expenses
21 22 23 23 24
Shareholder Plaintiffs seek an order requiring Defendants to redeem the Poison Pill (“Pill”) of Airgas, Inc. (“Airgas” or the “Company”) and to exempt the $70 per share cash tender offer (the “Tender Offer”) by Air Products and Chemicals, Inc. (“Air Products”) from the strictures of 8 Del. C. §203 (“Section 203”) and Article 6 of the Airgas Certificate of Incorporation (“Article 6”), conditioned upon Air Products undertaking a subsequent offering period. To sustain their defenses to the Tender Offer, Defendants must prove that the Tender Offer constitutes a threat and that their response to the Tender Offer is reasonable in proportion to that threat. Defendants have failed in both respects. See Pre-Trial Brief at 18-19, Post-Trial Brief at 38-44, Post-Trial Reply Brief at 14.1 As instructed by the Court, Shareholder Plaintiffs submit this Memorandum setting forth their specific claims, with page references to relevant prior briefing, and additional evidence adduced in connection with the Supplemental Evidentiary Hearing supporting those claims.2 This Memorandum also sets forth the specific relief sought by Shareholder Plaintiffs.3
“Pre-Trial Brief” refers to Shareholder Plaintiffs’ Pre-Trial Brief, filed September 24, 2011; “Post-Trial Brief” refers to Shareholder Plaintiffs’ Post-Trial Brief, filed November 1, 2010; “Post-Trial Reply Brief” refers to Shareholder Plaintiffs’ Post-Trial Reply Brief, filed November 12, 2010; and “Post-Trial Supp. Brief” refers to Shareholder Plaintiffs’ Post-Trial Supplemental Brief, filed December 10, 2011. Citations herein to “S.E.H. Tr.” refer to the transcript of the Supplemental Evidentiary Hearing held January 25-27, 2011. “Exhibit” refers to the Joint Exhibit list submitted to the Court in connection with the Trial and the Supplemental Evidentiary Hearing.
Defendants Have Not Identified a Legally Cognizable Threat a. This Dispute is All About Price
There is no evidence that the Tender Offer represents a threat to Airgas’ corporate policy or effectiveness. Rather, the evidence shows that the dispute between Airgas and its shareholders is strictly about whether the fixed price Air Products is offering today is more attractive than the potential value that Defendants may or may not be able to create at some undefined point in the future through execution of management’s business plan. Airgas’ shareholders are more than capable of making an economic decision about their investments. A disagreement over price alone does not constitute a legally recognized threat. See Pre-Trial Brief at 21-26, Post-Trial Brief at 26-29, 44-49, Post-Trial Reply Brief at 14-18, Post-Trial Supp. Brief at 4-10. The supplemental evidence confirms that the Airgas Board’s consideration of the Tender Offer focused strictly on price and, further, that the Airgas Board never concluded that the Tender Offer poses any “threat” to Airgas’ corporate policies or effectiveness. For instance: x In response to the Court’s inquiry, Mr. McCausland failed to identify any threat to Airgas’ business posed by the Tender Offer, and conceded that any uniqueness of Airgas as a company likely goes to value.4 In fact,
A proposed form of Final Judgment Pursuant to Rule 54(b) has been submitted herewith.
S.E.H. Tr. at 300:8-301:19 (McCausland).
according to Mr. McCausland, an inadequate offer is a threat whether or not it is structurally coercive.5 x
The December 21, 2010 minutes of the Airgas Board meeting (“Minutes”)7 and Schedule 14D-9/A, which members of the Board confirmed to be complete and accurate, and the testimony at trial, show that the Airgas Board did not meaningfully discuss redeeming the Pill, the protections available to Airgas shareholders in a second-step transaction, or the now-claimed coerciveness of the Tender Offer.8 For example: x There was no discussion of coercion or threat at the December 21, 2010 meeting and no indication in the Minutes that these topics were discussed.9
S.E.H. Tr. at 247:5-249:2 (McCausland). Exhibit 1090, Exhibit 1063.
Indeed, not a single director or advisor during deposition or at trial could identify a specific discussion concerning any threat or coercion posed by the Tender Offer or any specific discussion about pulling or maintaining the Pill. Exhibit 1063, S.E.H. Tr. at 242:5-244:6, 265:14-266:24, and 269:16-270:3 (McCausland). See also Exhibit 1094,
The lone mention of the Pill during the December 21, 2010 Board meeting when the $70 offer price was considered was Mr. Clancey’s statement that the Pill should be protected, but there was no discussion of this point and other board members at the meeting conceded they did not know what Mr. Clancey’s pronouncement even meant.10 Airgas Board members never discussed whether the Air Products’ offer was coercive or that shareholders might feel pressured to tender.11 All of the reasons for the Board’s recommendation not to tender are in the Schedule 14D-9/A filed December 22, 2010,12 which Mr. McCausland testified is an accurate statement of the Airgas Board’s position, and the Schedule 14D-9/A does not reference any coercion or threat.13 Any views members of the Airgas Board have about the Tender Offer being coercive relate to the structure of a tender offer generally and are not based on any discussion amongst the Airgas Board or any discussions with any Airgas shareholders.14
Given all of this evidence, certain Defendants’ testimony that all those issues were on the “top of their minds” or “implicit” in discussions is just not credible.
S.E.H. Tr. at 150:5-152:20 (Miller); Exhibit 1090, S.E.H. Tr. 153:3-154:13, 157:6-9, and 158:10-21 (Miller); see also Exhibit 1095, Exhibit 1090,
S.E.H. Tr. 435:7-17 and 436:7-14 (Clancey). Exhibit 659, S.E.H. Tr. at 244:7-12 and 246:17-23 (McCausland).
The Airgas Shareholders Are Fully Informed and Capable to Decide Whether to Tender
There is no basis to infer, much less conclude that Airgas shareholders are unable to make an informed decision for themselves whether the Air Products Offer of $70 per share is in their own economic interests. See Pre-Trial Brief at 27-33, Post-Trial Brief at 23-26, 51-56, Post-Trial Supp. Brief at 18-20. Indeed, the evidence is overwhelmingly to the contrary and supports the conclusion that the information available to the shareholders is “more than adequate.”15 x The Airgas Board has had a year behind the Pill to disseminate its recommendations and all material information to the Airgas stockholders concerning Airgas’s value and the Air Products Tender Offer. The Airgas stockholders have all material information necessary to decide whether to accept the Tender Offer, including the Board’s recommendation not to tender,16 the Board’s stated beliefs that $70 per share is “clearly inadequate” and that Airgas has a value of at least $78 per share in a sale,17 the projections and views of analysts which closely correspond with management’s projections,18 analysts’ price targets over the next twelve months,19 and earnings guidance from the Company
S.E.H. Tr. at 454:1-5 (Clancey). See also, S.E.H. Tr. at 189:19 190:6 (McCausland)(Testifying that Airgas has made all the required disclosures), Exhibit 1095, Exhibit 1093,
16 17 18 19
See Exhibit 1094, Exhibit 659 at 3. See S.E.H. Tr. at 395:9-19 (DeNunzio). S.E.H. Tr. at 21:21-29:22 (Huck).
including the Board’s projections based on mid-term goals in the Company’s 5-year plan.20 x To the extent the Airgas directors have more knowledge about the Company and its prospects than the public stockholders, as is true in any public company, such knowledge is included in the Board’s recommendation and statements regarding the inadequacy of the $70 price and value of Airgas in a sale.21 The Airgas Board believes it has clearly conveyed its message regarding the inadequacy of the Tender Offer and the value of Airgas in a sale. 22 Virtually the entire Supplemental Evidentiary Hearing was conducted in open Court, including extensive testimony by Messrs. McCausland and DeNunzio regarding the basis for Defendants’ belief that they can create $78 per share in value within a year or so.23
S.E.H. Tr. at 190:7-16 (McCausland).
For example, Mr. McCausland qualifies his prior trial testimony to say that while all information required to be disclosed has been disclosed, the Board always will have more and better information than the public. S.E.H. Tr. at 268:3-17 (McCausland). He acknowledges that his position is a mere truism. S.E.H. Tr. at 269:1-7 (McCausland). Defendants cannot point to any piece of information that needs to be disclosed, and any information the Board possesses that is confidential is incorporated into the Board’s recommendation. See Exhibit 1090, and Exhibit 1094, . Mr. McCausland testified that he has made it abundantly clear that the Board believes $70 is inadequate. S.E.H. Tr. at 253:4-8, 254:6-8, and 254:14-20 (McCausland).
See also Exhibit 1093,
See e.g., S.E.H. Tr. at 396:1-4 (Mr. DeNunzio acknowledging that the proceeding was public and being broadcast).
The Airgas stockholders are sophisticated.24
If the Court harbors any concern about the completeness of the information available to the public regarding the Board’s view of the adequacy of the $70 price or value of Airgas, those concerns can be remedied by ordering Defendants to disclose on a Schedule 14D-9 the valuation analyses provided to the Board by the three (3) financial advisors which are based on management’s “refreshed” 5-year plan. c. Reasonable Airgas Shareholders Could Presently Prefer the $70 Per Share Tender Offer Price
The Shareholder Plaintiffs take no position as to the “adequacy” or “fairness” of the $70 per share price of the Tender Offer.25
See Post-Trial Brief at 29-37, Post-Trial Supp. Brief at 16-18, 20-21. x It is undisputed that the $70 price is a premium to the present undisturbed stock price.26
See Exhibit 1090, As one of the new directors testified, there are no facts to suggest that Airgas shareholders would tender into an offer they considered inadequate. S.E.H. Tr. 153:3-6 (Miller). There are also no facts that suggest Airgas shareholders would be incapable of making an economic decision on the Air Products Tender Offer. S.E.H. Tr. at 154:14-155:3 (Miller).
The relief sought by Shareholder Plaintiffs will leave, undisturbed, entire fairness and appraisal remedies in any second-step merger by Air Products, should it acquire a majority of the Airgas shares in the Tender Offer. S.E.H. Tr. 417:19-22 (Clancey testifying his view that unaffected price is $61)
x x x x
The Company’s 5-year Plan includes risks, and Defendants cannot guarantee the achievability of the Company’s 5-year Plan. 27 No one can control or guarantee at what price Airgas stock will trade in the future.28 No one can guarantee the macroeconomic assumptions in the Plan.29 There is an appreciable chance of a double dip recession. 30
S.E.H. Tr. at 280:22-281:18 (McCausland). S.E.H. Tr. at 281:19 282:6 (McCausland). See also S.E.H. Tr. 363:9-12 (DeNunzio testifying that Credit Suisse has not tested the achievability of the 5-year plan),
See, e.g., S.E.H. Tr. at 280:6-9 .
See S.E.H. Tr. 391:13-392:1 and 392:9-12 (DeNunzio). See also Exhibit 1095,
S.E.H. Tr. at 264:19:-265:2 (McCausland).
The Board did not ascertain the potential effects of a double dip recession on the Company’s prospects. 31 Notwithstanding the Board’s stated belief that the Company is worth at least $78 per share in a sale, no other bidder has emerged to offer more than $70 per share,32
In sum, the $70 price offers absolute immediate value, while Defendants’ only proposed alternative is for Airgas shareholders to bear the risk that management might achieve projections and that Airgas will then be worth greater value in the future.
There was no discussion with bankers about the value of Airgas stock if there is a double dip recession. S.E.H. Tr. at 181:3-182:1 (Miller) and 277:15-22 (McCausland). . S.E.H. Tr. at 279:19-24 (McCausland).
See S.E.H. Tr. 741:13-742:8 (Morrow). .
S.E.H. Tr. at 282:13-283:10 (McCausland).
S.E.H. Tr. at 282:13-283:10, 283:17-284:10 (McCausland). S.E.H. Tr. at 292:11 294:4 (McCausland).
There is No Prisoner’s Dilemma
Defendants’ “prisoner’s dilemma” theory is merely a legal tactic to manufacture a threat where none exists. See Post-Trial Reply Brief at 17-18. Taken to its logical conclusion, the so-called prisoner’s dilemma argument would render every tender offer coercive. The Board’s decision to maintain the Pill was not based on any concern of a “prisoner’s dilemma.” The Board never discussed the “prisoner’s dilemma” concept and did not articulate a “prisoner’s dilemma” threat as one of its reasons for recommending against the Tender Offer. x x x The Board never discussed the concept of a “prisoner’s dilemma.”36 The Minutes do not reflect any discussion or even reference to the concept of “prisoner’s dilemma.”37 The Schedule 14D-9/A does not discuss the “prisoner’s dilemma” concept. The Schedule 14D-9/A does not list “prisoner’s dilemma” or coercion among the reasons provided in the Schedule 14D-9/A for the Board’s recommendation against the Tender Offer.38
S.E.H. Tr. 157:10-22 (Miller), 438:9-12 (Clancey), 369:8-11 (DeNunzio). See also Exhibit 1090,
See Exhibit 1063. Exhibit 659, S.E.H. Tr. 435:7-17, 436:7-437:18 (Clancey).
Defendants’ expert Mr. Harkins, who introduced the “prisoner’s dilemma” theory in this litigation, never discussed the concept with the Board and never even advised the Board.39 The Board heard of the concept of a “prisoner’s dilemma” in the context of Air Products’ Offer only in connection with this litigation.40
Even if the Board had considered the possibility of a “prisoner’s dilemma” as justification for blocking the Tender Offer, it could not reasonably rely on this theory to do so because the “prisoner’s dilemma” provides no basis for shareholders to be “protected from themselves.”41 See Post-Trial Brief at 49-50, Post-Trial Supp. Brief at 18-20.
See S.E.H. Tr. 554:2 - 555:6 (Harkins). See also Exhibit 1099, .
S.E.H. Tr. 438:13 439:5 (until his deposition, Mr. Clancey had never heard the concept discussed in the context of the Air Products offer) and157:23-158:3 (Mr. Miller only heard the term when meeting with counsel for his deposition preparation). Mr. McCausland believes he has a duty to protect arbitrageurs from themselves. S.E.H. Tr. at 250:20-252:20.
As admitted by Mr. Harkins, investors weigh a multitude of factors when deciding whether to tender, and those factors may make the “prisoner’s dilemma” a non-issue to the investors’ decision.42 At trial, Mr. Morrow stood by his prior deposition testimony: “You know, you would have to ask each one of [the long-term investors] why they sold it. My guess is you would get many different reasons, all reasons in my mind well thought out by them. What the reasons were, I have no idea. All I know, they will not sell if they were not satisfied with the price.”43 If shareholders believe the offer price already exceeds the Company’s fair value, then shareholders would rationally tender, irrespective of any supposition about how short-term investors or other investors may or may not behave.44 Delaware Law Adequately Protects Non-Tendering Shareholders
The ownership positions of Mr. McCausland and other directors and officers of Airgas effectively preclude Air Products from taking advantage of 8 Del. C. §253. See Post-Trial Reply Brief at 18. Delaware law thus already provides adequate protections for shareholders who choose not to tender. When Air Products seeks to close the back end as it has committed to do Air Products will be subject to entire fairness and to
See S.E.H. Tr. 595:17 - 596:4 (Harkins) (“Q: And so the extent to which the prisoner’s dilemma matters in any particular situation depends on all of the facts and circumstances. Right? A: Yes.”) and 596:5-12 (Mr. Harkins conceded that factors, such as “the relationship between the perceived market value of the stock free of any takeover offer, the bid price, the perceived value of the company, and the number of shareholders held by the arbs” will dictate whether the “dilemma” is an important issue, a minimal issue, or an issue at all).
S.E.H. Tr. 747:22-748:14 (Morrow). S.E.H. Tr. 598:19-599:18 (Harkins).
claims for appraisal rights. See Post-Trial Reply Brief at 1-3. With those powerful protections in place, there is no cognizable threat that non-tendering shareholders will be forced to accept less than fair value for their shares. conclusion: x x Appraisal was not discussed by the Board at any of its meetings.45 If Air Products acquires more than a majority of shares in its tender offer, the remaining shareholders will be afforded appraisal rights in any followon merger.46 A majority shareholder owes fiduciary duties to the minority shareholders.47 The evidence supports this
There is no need to graft 8 Del. C. §251-style board approval onto tender offers. See Post-Trial Supp. Brief at 2. Contrary to Mr. McCausland’s view that shareholders, including arbitrageurs, need to be protected from themselves and that any decision to
S.E.H. Tr. 446:12-15 (Clancey). See S.E.H. Tr. at 291:13-19
, 444:1318 (Clancey) and S.E.H. Tr. at 728:14-729:23 (Morrow viewing an appraisal option as limiting shareholder concerns that they can never get more than the minimum clearing price in a tender offer).
See S.E.H. Tr. at 287:10-14 (McCausland) and 445:20-446:2 (Clancey).
accept the Tender Offer belongs to board rather than the shareholders,48 the General Assembly has imposed no such requirement and none should be created here.
See S.E.H. Tr. at 259:23-260:23 (McCausland) (“It is not the shareholders’ decision to make a determination whether an offer should be accepted or not. … It’s the Board’s job.”).
Even if the Tender Offer Does Constitute a Threat, Defendants Have Not Carried Their Burden to Show Permanent Maintenance of the Pill is Reasonable in Relation to that Threat a. The Pill is Preclusive
The Pill is preclusive to the Tender Offer’s success, and Defendants cannot demonstrate that it is a reasonably proportioned response. See Post-Trial Reply Brief at 24-26, Post-Trial Supp. Brief at 12-16. In addition, x The Board never discussed whether it should keep the Pill in place and never discussed whether the Board had an obligation to review periodically whether it should or should not keep the Pill in place.49 The Board intends to let the Pill stand indefinitely, even if the Board believes that the $70 offer is Air Products’ best and final offer.50 The Board intends to limit Company shareholders to only one option if they would like an opportunity to tender they must vote the Board out.51
S.E.H. Tr. at 152:21-153:2 (Miller). See also Exhibit 1090, , Exhibit 1096,
S.E.H. Tr. at 231:16-20 (Mr. McCausland does not believe there is a time limit on the pill), ,
S.E.H. Tr. at 230:2-18 (Mr. McCausland believes Board is entitled to make the final determination on adequacy of the offer and the shareholders’ only recourse is to vote the Board out) and 170:17-171:9 (Mr. Miller believes shareholders’ only recourse is to replace the Board). See also Exhibit 1090,
The Ballot Box Offers No Alternative
There is no evidence that a shareholder vote at a special election provides a viable alternate route for the Tender Offer’s success. See Post-Trial Supp. Brief at 11-12. Notably, while Airgas’ and Air Products’ proxy experts differ on the achievability of a 67% removal vote, they agree on one thing - neither expert has ever seen an insurgent obtain two-thirds of the outstanding shares in a contested control election.52 Moreover, even if a 67% removal vote could be achieved, the ballot box alternative is based on a flawed premise. Airgas assumes the newly elected board would reach a different
conclusion than the current directors.53 The actions of the three directors elected at Airgas’ 2010 annual meeting demonstrate the inefficacy of the ballot. In other words, even if Air Products obtains the necessary consents to call a special meeting, and at the meeting obtains the support of 67% of the outstanding shares over Defendants’ opposition, Air Products and the Airgas shareholders will find themselves in exactly the same predicament they face today. In any event, Defendants failed to prove with evidence (as opposed to supposition) that a 67% removal vote is achievable over the Board’s objections: x While Defendants’ proxy expert Peter Harkins opined that Air Products could realistically attain the 67% level by presenting Airgas shareholders
See S.E.H. Tr. 759:10-19 (Morrow) and 658:4-10 (Harkins).
Both Mr. McCausland and Mr. Harkins testified that they believe newly elected directors would have a fiduciary duty to maintain the Pill. S.E.H. Tr. 574:24 577:10 (Harkins) and 226:24-227:15 (McCausland).
with a sufficiently appealing platform,54 Harkins refused to define what price point would constitute an appealing platform, but nevertheless assumed one for his opinion.55 x Mr. Harkins made a litany of other speculative assumptions about how a static shareholder base would vote and devised a mathematical plug to ensure that his model supported the conclusion that a 67% vote is attainable.56 The speculative nature of Mr. Harkins’ assumptions was underscored by his concession that he really does not know how shareholders will act if given the chance to tender into Air Products’ offer.57
. At the supplemental hearing, he did an about-face, testifying that even though Air Products could only garner 55% support for its minority slate at the 2010 annual meeting, Air Products could now achieve 67% support to remove the entire Airgas Board. See S.E.H. Tr. 522:4-21, 528:2-10 (Harkins). Harkins admitted, however, that the shareholder vote in September 2010 was on a $65.50 offer and was intended simply to “maximize their options.” S.E.H. Tr. at 665:23-666:7 (Harkins).
S.E.H. Tr. 591:22 592:4 (Mr. Harkins testified that he could not know what was “sufficiently appealing” until shareholders acted.) and 659:16 660:15 (Harkins). See S.E.H. Tr. 467:16 482:21 (Harkins).
For example, with respect to the voting behavior of dual-holders of both Airgas and Air Products stock, Mr. Harkins testified: A. No, because we don't know what -- dual holders might be supportive of the offer and they might be opposed to the offer. I am predicting that for an appealing offer, certain of those dual holders that we discussed in my deposition are likely to vote for the Air Products’ initiative to remove directors. S.E.H. Tr. 603:12-17 (Harkins).
Mr. Harkins assumed that ISS would support Air Products’ removal proposal.58 Mr. Harkins, however, conceded that ISS has never supported a hostile bidder’s proposed majority slate in a director election.59 The only evidence Defendants provided to support the inference that ISS will support Air Products at the special meeting is Morrow & Co.’s interview of a former ISS employee. However, as Mr. Morrow accurately pointed out under cross-examination, the views in the interview -- which nowhere say that ISS would support a hostile bidder's majority slate -- are not even views that can be attributed to ISS.60 Mr. Morrow declined to predict how all or any subset of shareholders would actually vote,61 explaining that even in his professional practice he would not predict the
58 59 60
S.E.H. Tr. 479:23-480:15 (Harkins). S.E.H. Tr. 540:1-10 (Harkins).
S.E.H. Tr. 776:16-777:10 (Morrow). Mr. Young’s statement does, however, succinctly describe the current circumstances: Over the long-run, however, we believe that after the target company has had a chance to find a white knight willing to pay more, or has had sufficient time to convince its shareholders why the offer is not in shareholders’ best interests, it is shareholders which should have the right to accept or reject an offer without interference by the board Exhibit 1001G.
See S.E.H. Tr. 760:7-761:2 and 776:16-777:21 (Mr. Morrow testifying that even if one does speak with arbs and hedge funds one cannot predict their vote with certainty nor can one predict institutional shareholder votes without speaking with them.).
outcome of a vote until the proxies are being collected.62
Moreover, Mr. Morrow
unequivocally opined that achieving the 67% level required for removal is impossible absent board support, regardless of the price offered.63 Finally, the timing of the ballot box alternative renders it ineffective as a route to circumvent the Pill. See Post-Trial Supp. Brief at 1-2, 12. Whether Airgas shareholders attempt to remove directors through a special meeting64 or instead choose to vote out the Board at the next annual meeting,65 shareholders will be precluded from tendering until at least late summer. There is no guarantee that Air Products will be able to justify to its own shareholders keeping the Tender Offer open for this lengthy period.
See S.E.H. Tr. at 700:7-14 (Morrow) (“We do not make predictions until the last 48 hours, when we see where we stand, in every proxy fight.”). See also S.E.H. Tr. 723:1-8 (“Q: [Y]ou told me that you would never predict what the arbs or hedge funds are going to vote until the game is over. Correct? A: That’s correct.”). See S.E.H. Tr. 701:19-702:5 (Morrow) (“Regardless of the price, if management still opposes it and is willing to fight against it and has a position, yes. And I do that based on experience.”). See also S.E.H. Tr. 769:14-21 (Morrow) (“You can get a twothirds vote if both sides work on it. You cannot get it in a proxy contest, where one side is opposing, the other side’s trying to get two-thirds vote. That’s all I’m saying in this whole thing.”).
If holders of 33% of Airgas’ outstanding shares request a special meeting to remove directors, such meeting will be held between 90 and 120 days from the date of such request. Airgas’ next annual meeting of shareholders will be held approximately in September 2011.
Policy Factors Favor Redeeming the Pill
The policy issues implicated by this litigation favor granting the relief requested. Hostile offers are an important avenue to unlocking shareholder value. The poison pill can be a useful tool in maximizing the price attained through such offers. However, the circumstances present here (including, among other things, the passage of over a year since Air Products’ initial offer, the lack of a threat to corporate policy, the volume of information provided to Airgas shareholders, the lack of alternatives to Air Products’ offer, the risk borne by shareholders if they are forced to let Defendants execute on their five-year business plan, and the bona fides of Air Products as a bidder with full financing and the ability to close the offer) favor giving shareholders the opportunity to decide whether to put faith in Defendants’ ability to execute on their plan or to take the cash on the table. At its core, Defendants’ position is that unsolicited tender offers are themselves coercive, and should be deterred in all circumstances (at least to the extent the target board does not support the offer). This Court should not accept Defendants’ invitation to make the hostile offer a thing of the past in Delaware.
The Court Should Grant the Relief Sought by Shareholder Plaintiffs a. Immediate Redemption of the Pill Previously,
Shareholder Plaintiffs seek immediate redemption of the Pill.
Shareholder Plaintiffs had sought a 30-day window prior to the redemption of the Pill. See Post-Trial Reply 26-27. At the time Shareholder Plaintiffs had proposed the 30-day window,
.69 And even though Mr. McCausland maintains regular contacts within the industry,70 no superior bidder has emerged. Air Products’ representatives testified that $70 is the “best and final” offer and that Air Products’ management does not intend to recommend a higher price to the Air
66 67 68 69 70
S.E.H. Tr. at 282:7-12 (McCausland). S.E.H. Tr. at 282:13-283:10 (McCausland). S.E.H. Tr. at 283:22-284:10 (McCausland). S.E.H. Tr. at 283:11-16 (McCausland). S.E.H. Tr. at 304:9-305:19 (McCausland).
Products board.71 What few discussions have occurred between Airgas and Air Products have been futile, and the Airgas Board has no intention to do anything further with respect to Air Products’ $70 offer.72 In view of those factors, Shareholder Plaintiffs believe that immediate redemption of the Pill is warranted and justified. b. Section 203 and Article 6
The Shareholder Plaintiffs did not previously seek neutralization of Section 203 or Article 6 in connection with an acquisition of Airgas by Air Products. Based on the Supplementary Evidentiary Hearing, the further passage of time during which no alternative has emerged and the Defendants’ stated position that the best alternative to the Tender Offer is to execute Airgas’ 5-year plan,73 the Shareholder Plaintiffs now join Air Products’ requests that this Court’s Final Judgment include relief to neutralize Section 203 and Article 6. The Shareholder Plaintiffs believe that Delaware law governing the fiduciary duties of directors and controlling stockholders, the exacting entire fairness standard of review and the statutory right of appraisal, together provide the necessary and sufficient protections to the non-tendering Airgas stockholders in a back-end merger. After this already 14-15 month process, the requirements of Section 203 and Article 6 only serve to add procedural hurdles which would likely cause unnecessary delay to the consummation of a transaction. As with the 30-day window Shareholder Plaintiffs
71 72 73
S.E.H. Tr. at 106:10-13 (Davis), 108:12-15 and 109:8-12 (McGlade). S.E.H. Tr. at 284:11-18 (McCausland). See S.E.H. Tr. at 204:19-206:1 (McCausland).
originally sought prior to removal of the Pill, the delay to satisfy Section 203 and Article 6 at this point provides no prospect for any incremental benefit for Airgas shareholders. Shareholder Plaintiffs’ proposed form of judgment thus includes removal of the Pill and neutralization of Section 203 and Article 6, but further specifies that the fiduciary duties of Air Products and the Airgas directors in the event Air Products acquires a majority of the stock of Airgas shall not be restricted or abridged. c. Undertaking Required of Air Products
Messrs. McGlade and Huck testified that Air Products is committed to obtaining 100% ownership of Airgas and to do so quickly after a successful Tender Offer.74 Shareholder Plaintiffs accept that representation made to the Court. Further, Air Products representatives also testified that Air Products would accept a subsequent offering period at the $70 per share Tender Offer price as a condition to redemption of the Pill.75 Shareholder Plaintiffs’ proposed form of Final Judgment Pursuant to Rule 54(b) includes this undertaking by Air Products as a condition to the relief sought. d. Balance of the Equities
The relief sought by Shareholder Plaintiffs balances the equitable interests of all Airgas Shareholders. See Post-Trial Supp. Brief at 21-23. Those Airgas shareholders who desire immediately the opportunity to tender their shares into the Tender Offer can do so. The condition Shareholder Plaintiffs propose to impose on Air Products will
S.E.H. Tr. at 110:17-22 (McGlade) and 15:15-17 (Huck). S.E.H. Tr. at 111:13-18, 112:13-17 (McGlade) and 15:21-16:6 (Huck).
ensure the $70 offer will remain open in a subsequent offering period. Non-tendering shareholders are also protected by the doctrine of entire fairness and statutory appraisal rights. Defendants’ equitable interests are unaffected by entry of the relief proposed by Shareholder Plaintiffs. e. Attorneys’ Fees and Expenses
Shareholder Plaintiffs believe an application for attorneys’ fees and expenses is premature at this time. The proposed Order and Judgment submitted herewith proposes to sever, pursuant to Ch. Ct. R. 54(b), any claim for attorneys’ fees and expenses arising from this litigation. Entry of an order reflecting that term will permit appeal, if any, to be taken on the Order and Judgment without delay for resolution of a claim for attorneys’ fees and expenses and will permit an application for attorneys’ fees and expenses, if and when appropriate. Counsel for Shareholder Plaintiffs have spoken with Air Products counsel who have confirmed that, subject to the Court’s approval, Air Products will not oppose paragraph 3 of Shareholder Plaintiffs’ proposed form of Final Judgment Pursuant to Rule 54(b), and as such Shareholder Plaintiffs do not anticipate any need to take additional action to preserve funds if the Tender Offer goes forward. Dated: February 2, 2011 CHIMICLES & TIKELLIS LLP /s/ Pamela S. Tikellis Pamela S. Tikellis (No. 2172) Robert J. Kriner, Jr. (No. 2546) A. Zachary Naylor (No. 4439) Scott M. Tucker (No. 4925) 222 Delaware Ave. P.O. Box 1035 Wilmington, DE 19899
(302) 656-2500 Co-Lead Counsel and Stockholder Plaintiffs’ Liaison Counsel BARRACK, RODOS & BACINE Jeffrey W. Golan M. Richard Komins Julie B. Palley 3300 Two Commerce Square 2001 Market Street Philadelphia, PA 19130 (215) 963-0600 Co-Lead Counsel BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Mark Lebovitch Amy Miller Jeremy Friedman 1285 Avenue of the Americas New York, NY 10019 (212) 554-1400 Co-Lead Counsel ROBBINS GELLER RUDMAN & DOWD LLP Randall J. Baron A. Rick Atwood, Jr. David T. Wissbroecker 655 West Broadway, Suite 1900 San Diego, CA 92101 (619) 231-1058 Co-Lead Counsel OF COUNSEL: BERMAN DEVALERIO Leslie R. Stern One Liberty Square
Boston, MA 02109 (617) 542-8300 Member of Plaintiffs’ Executive Committee SAXENA WHITE P.A. Joseph E. White III 2424 North Federal Highway Boca Raton, FL 33431 Telephone: (561) 394-3399 Member of Plaintiffs’ Executive Committee
CERTIFICATE OF SERVICE I hereby certify that on this 3rd day of February, 2011, a copy of the foregoing was served electronically via LexisNexis File & Serve upon the following attorneys of record:
Kenneth J. Nachbar, Esquire Jon E. Abramczyk, Esquire William M. Lafferty, Esquire John P. DiTomo, Esquire Ryan D. Stottman, Esquire MORRIS NICHOLS ARSHT & TUNNELL LLP 1201 North Market Street Wilmington, DE 19801
Pamela S. Tikellis, Esquire Robert J. Kriner, Jr., Esquire CHIMICLES & TIKELLIS LLP 222 Delaware Ave. Wilmington, DE 19899
/s/ Berton W. Ashman, Jr. Berton W. Ashman, Jr. (No. 4681)