Air Products & Chemicals, Inc. v. Airgas, Inc.

OPINION

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This case poses the following fundamental question: Can a board of directors, acting in good faith and with a reasonable factual basis for its decision, when faced with a structurally non-coercive, all-cash, fully financed tender offer directed to the stockholders of the corporation, keep a poison pill in place so as to prevent the stockholders from making their own decision about whether they want to tender their shares — even after the incumbent board has lost one election contest, a full year has gone by since the offer was first made public, and the stockholders are fully informed as to the target board’s views on the inadequacy of the offer? If so, does that effectively mean that a board can “just say never” to a hostile tender offer?

The answer to the latter question is “no.” A board cannot “just say no” to a tender offer. Under Delaware law, it must first pass through two prongs of exacting judicial scrutiny by a judge who will evaluate the actions taken by, and the motives of, the board. Only a board of directors found to be acting in good faith, after reasonable investigation and reliance on the advice of outside advisors, which articulates and convinces the Court that a hostile tender offer poses a legitimate threat to the corporate enterprise, may address that perceived threat by blocking the tender offer and forcing the bidder to elect a board majority that supports its bid.

In essence, this case brings to the fore one of the most basic questions animating all of corporate law, which relates to the allocation of power between directors and stockholders. That is, “when, if ever, will a board’s duty to ‘the corporation and its shareholders’ require [the board] to abandon concerns for ‘long term’ values (and other constituencies) and enter a current share value maximizing mode?” 1 More to the point, in the context of a hostile tender offer, who gets to decide when and if the corporation is for sale?

*55 Since the Shareholder Rights Plan (more commonly known as the “poison pill”) was first conceived and throughout the development of Delaware corporate takeover jurisprudence during the twenty-five-plus years that followed, the debate over who ultimately decides whether a tender offer is adequate and should be accepted — the shareholders of the corporation or its board of directors — has raged on. Starting with Moran v. Household International, Inc. 2 in 1985, when the Delaware Supreme Court first upheld the adoption of the poison pill as a valid takeover defense, through the hostile takeover years of the 1980s, and in several recent decisions of the Court of Chancery and the Delaware Supreme Court, 3 this fundamental question has engaged practitioners, academics, and members of the judiciary, but it has yet to be confronted head on.

For the reasons much more fully described in the remainder of this Opinion, I conclude that, as Delaware law currently stands, the answer must be that the power to defeat an inadequate hostile tender offer ultimately lies with the board of directors. As such, I find that the Airgas board has met its burden under Unocal to articulate a legally cognizable threat (the allegedly inadequate price of Air Products’ offer, coupled with the fact that a majority of Airgas’s stockholders would likely tender into that inadequate offer) and has taken defensive measures that fall within a range of reasonable responses proportionate to that threat. I thus rule in favor of defendants. Air Products’ and the Shareholder Plaintiffs’ requests for relief are denied, and all claims asserted against defendants are dismissed with prejudice. 4

INTRODUCTION

This is the Court’s decision after trial, extensive post-trial briefing, and a supplemental evidentiary hearing in this long-running takeover battle between Air Products & Chemicals, Inc. (“Air Products”) and Airgas, Inc. (“Airgas”). The now very public saga began quietly in mid-October 2009 when John McGlade, President and CEO of Air Products, privately approached Peter McCausland, founder and CEO of Airgas, about a potential acquisition or combination. After McGlade’s private advances were rebuffed, Air Products went hostile in February 2010, launching a public tender offer for all outstanding Air-gas shares.

Now, over a year since Air Products first announced its all-shares, all-cash tender offer, the terms of that offer (other than price) remain essentially unchanged. 5 After several price bumps and extensions, the offer currently stands at $70 per share and is set to expire today, February 15, 2011 — Air Products’ stated “best and final” offer. The Airgas board unanimously rejected that offer as being “clearly inadequate.” 6 The Airgas board has repeatedly *56 expressed the view that Airgas is worth at least $78 per share in a sale transaction— and at any rate, far more than the $70 per share Air Products is offering.

So, we are at a crossroads. Air Products has made its “best and final” offer— apparently its offer to acquire Airgas has reached an end stage. Meanwhile, the Airgas board believes the offer is clearly inadequate and its value in a sale transaction is at least $78 per share. At this stage, it appears, neither side will budge. Airgas continues to maintain its defenses, blocking the bid and effectively denying shareholders the choice whether to tender their shares. Air Products and Shareholder Plaintiffs now ask this Court to order Airgas to redeem its poison pill and other defenses that are stopping Air Products from moving forward with its hostile offer, and to allow Airgas’s stockholders to decide for themselves whether they want to tender into Air Products’ (inadequate or not) $70 “best and final” offer.

A week-long trial in this case was held from October 4, 2010 through October 8, 2010. Hundreds of pages of post-trial memoranda were submitted by the parties. After trial, several legal, factual, and evi-dentiary questions remained to be answered. In ruling on certain outstanding evidentiary issues, I sent counsel a Letter Order on December 2, 2010 asking for answers to a number of questions to be addressed in supplemental post-trial briefing. On the eve of the parties’ submissions to the Court in response to that Letter Order, Air Products raised its offer to the $70 “best and final” number. At that point, defendants vigorously opposed a ruling based on the October trial record, suggesting that the entire trial (indeed, the entire case) was moot because the October trial predominantly focused on the Airgas board’s response to Air Products’ then-$65.50 offer and the board’s decision to keep its defenses in place with respect to that offer. Defendants further suggested that any ruling with respect to the $70 offer was not ripe because the board had not yet met to consider that offer.

I rejected both the mootness and ripeness arguments. 7 As for mootness, Air Products had previously raised its bid several times throughout the litigation but the core question before me — whether Air Products’ offer continues to pose a threat justifying Airgas’s continued maintenance of its poison pill — remained, and remains, the same. And as for ripeness, by the time of the December 23 Letter Order the Airgas board had met and rejected Air Products’ revised $70 offer. I did, however, allow the parties to take supplemental discovery relating to the $70 offer. A supplemental evidentiary hearing was held from January 25 through January 27, 2011, in order to complete the record on the $70 offer. Counsel presented closing arguments on February 8, 2011.

Now, having thoroughly read, reviewed, and reflected upon all of the evidence presented to me, and having carefully considered the arguments made by counsel, I conclude that the Airgas board, in proceeding as it has since October 2009, has not breached its fiduciary duties owed to the Airgas stockholders. I find that the board has acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate.

Although I have a hard time believing that inadequate price alone (according to the target’s board) in the context of a nondiscriminatory, all-cash, all-shares, fully financed offer poses any “threat” — particularly given the wealth of information available to Airgas’s stockholders at this point *57 in time — under existing Delaware law, it apparently does. Inadequate price has become a form of “substantive coercion” as that concept has been developed by the Delaware Supreme Court in its takeover jurisprudence. That is, the idea that Air-gas’s stockholders will disbelieve the board’s views on value (or in the case of merger arbitrageurs who may have short-term profit goals in mind, they may simply ignore the board’s recommendations), and so they may mistakenly tender into an inadequately priced offer. Substantive coercion has been clearly recognized by our Supreme Court as a valid threat.

Trial judges are not free to ignore or rewrite appellate court decisions. Thus, for reasons explained in detail below, I am constrained by Delaware Supreme Court precedent to conclude that defendants have met their burden under Unocal to articulate a sufficient threat that justifies the continued maintenance of Airgas’s poison pill. That is, assuming defendants have met their burden to articulate a legally cognizable threat (prong 1), Airgas’s defenses have been recognized by Delaware law as reasonable responses to the threat posed by an inadequate offer — even an all-shares, all-cash offer (prong 2).

In my personal view, Airgas’s poison pill has served its legitimate purpose. Although the “best and final” $70 offer has been on the table for just over two months (since December 9, 2010), Air Products’ advances have been ongoing for over sixteen months, and Airgas’s use of its poison pill — particularly in combination with its staggered board — has given the Airgas board over a full year to inform its stockholders about its view of Airgas’s intrinsic value and Airgas’s value in a sale transaction. It has also given the Airgas board a full year to express its views to its stockholders on the purported opportunistic timing of Air Products’ repeated advances and to educate its stockholders on the inadequacy of Air Products’ offer. It has given Airgas more time than any litigated poison pill in Delaware history — enough time to show stockholders four quarters of improving financial results, 8 demonstrating that Airgas is on track to meet its projected goals. And it has helped the Airgas board push Air Products to raise its bid by $10 per share from when it was first publicly announced to what Air Products has now represented is its highest offer. The record at both the October trial and the January supplemental evidentiary hearing confirm that Airgas’s stockholder base is sophisticated and well-informed, and that essentially all the information they would need to make an informed decision is available to them. In short, there seems to be no threat here — the stockholders know what they need to know (about both the offer and the Airgas board’s opinion of the offer) to make an informed decision.

That being said, however, as I understand binding Delaware precedent, I may not substitute my business judgment for that of the Airgas board. 9 The Delaware Supreme Court has recognized inadequate price as a valid threat to corporate policy and effectiveness. 10 The Delaware Supreme Court has also made clear that the *58 “selection of a time frame for achievement of corporate goals ... may not be delegated to the stockholders.” 11 Furthermore, in powerful dictum, the Supreme Court has stated that “[djirectors are not obliged to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy.” 12 Although I do not read that dictum as eliminating the applicability of heightened Unocal scrutiny to a board’s decision to block a non-coercive bid as underpriced, I do read it, along with the actual holding in Unit-rin, as indicating that a 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.

Here, even using heightened scrutiny, the Airgas board has demonstrated that it has a reasonable basis for sustaining its long term corporate strategy — the Airgas board is independent, and has relied on the advice of three different outside independent financial advisors in concluding that Air Products’ offer is inadequate. Air Products’ own three nominees who were elected to the Airgas board in September 2010 have joined wholeheartedly in the Airgas board’s determination, and when the Airgas.board met to consider the $70 “best and final” offer in December 2010, it was one of those Air Products Nominees who said, “We have to protect the pill.” 13 Indeed, one of Air Products’ oum directors conceded at trial that the Airgas board members had acted within their fiduciary duties in their desire to “hold out for the proper price,” 14 and that “if an offer was made for Air Products that [he] considered to be unfair to the stockholders of Air Products ... [he would likewise] use every legal mechanism available” to hold out for the proper price as well. 15 Under Delaware law, the Airgas directors have complied with them fiduciary duties. Thus, as noted above, and for the reasons more fully described in the remainder of this Opinion, I am constrained to deny Air Products’ and the Shareholder Plaintiffs’ requests for relief.

I. FACTS

These are the facts as I find them after trial, several rounds of post-trial briefing, and the supplemental evidentiary hearing. 16 Because facts material to this dispute continued to unfold after the October trial had ended, I first describe the general background facts leading up to Air Products’ $70 “best and final” offer. The facts developed in the supplemental evi-dentiary hearing specifically necessary to determine whether Air Products’ $70 offer presents a cognizable threat and whether Airgas’s defensive measures are reasonable in relation to that threat are set forth beginning in Section I.P (under the heading “Facts Developed at the Supplemental Evidentiary Hearing”).

BACKGROUND FACTS

For ease of understanding, I begin with a list of some of the key players with *59 leading roles at the October trial. 17

From Air Products:

• John McGlade: Air Products’ CEO, President, and Chairman of the board.

• Paul Huck: Air Products’ CFO and Senior Vice President.

From Airgas:

• Peter McCausland: Airgas’s founder and CEO. McCausland also served as Chairman of the Airgas board from May 1987 until September 15, 2010.

• Robert McLaughlin: Airgas’s CFO and Senior Vice President.

• Michael Molinini: Airgas’s Chief Operating Officer and Executive Vice President.

• Lee Thomas: Airgas director.

• Richard III: Airgas former director who lost his board seat at the September 15, 2010 annual meeting.

The Financial Advisors:

• Filip Rensky: Investment banker from Bank of America Merrill Lynch, one of Airgas’s outside financial advisors.

• Michael Carr: Investment banker from Goldman Sachs, Airgas’s other outside financial advisor.

With those players in mind, 18 here are the facts as I find them after trial.

A. The Parties

1. Air Products

Plaintiff Air Products is a Delaware corporation headquartered in Allentown, Pennsylvania that serves technology, energy, industrial and healthcare customers globally. It offers a unique portfolio of products, services and solutions that in- *60 elude atmospheric gases, process and specialty gases, performance materials, equipment and services. 19 Air Products is the world’s largest supplier of hydrogen and helium, and it has also built leading positions in growth markets. 20 Founded in 1940 on the concept of “on-site” production and sale of industrial gases, Air Products revolutionized the sale of industrial gases by building gas generating facilities adjacent to large-volume gas users, thereby reducing distribution costs. 21 Today, with annual revenues of $8.3 billion and approximately 18,900 employees, the company provides a wide range of services and operates in over forty countries around the world. 22 Air Products currently owns approximately 2% of Airgas’s outstanding common stock.

2. Shareholder Plaintiffs

The Shareholder Plaintiffs are Airgas stockholders. Together, they own 15,159 shares of Airgas common stock, 23 and purport to represent all other stockholders of Airgas who are similarly situated.

3. Airgas Defendants

Airgas is a Delaware corporation headquartered in Radnor, Pennsylvania. Founded in 1982 by Chief Executive Officer Peter McCausland, it is a domestic supplier and distributor of industrial, medical and specialty gases and related hard-goods. 24 Built on an aggressive acquisition strategy (over 400 acquisitions in twenty-seven years), Airgas today operates in approximately 1,100 locations with over 14,-000 employees and is the premier packaged gas company in the U.S. 25 The core of Airgas’s business is “packaged” gas — delivering small volumes of gas in cylinders or bottles. 26 In the last five years or so, Airgas has been moving more into the bulk business as well. 27 In addition to the gas supply business, about 35% of Airgas’s business is comprised of “hardgoods,” which includes the products and equipment necessary to consume the gases, as well as welding and safety materials. 28

Before its September 15, 2010 annual meeting, Airgas was led by a nine-member staggered board of directors, divided into three equal classes with one class (three directors) up for election each year. 29 Other than McCausland, the rest of the board members are independent outside directors. 30 At the time of the September 15 annual meeting (and at the time this *61 lawsuit was initiated), the eight outside directors were: W. Thacher Brown; James W. Hovey; Richard C. Ill; Paula A. Sneed; David M. Stout; Lee M. Thomas; John C. van Roden, Jr. and Ellen C. Wolf 31 (together with McCausland, “director defendants,” and collectively with Airgas, “defendants”). 32

At the 2010 annual meeting, three Air-gas directors (McCausland, Brown, and Ill) lost their seats on the board when three Air Products nominees were elected. 33 On September 23, 2010, Airgas expanded the size of its board to ten members and reappointed McCausland to fill the new seat. 34 Thus, Airgas is now led by a ten-member staggered board of directors, nine of whom are independent. To be clear, references to the Airgas board in the section of this Opinion discussing the factual background from October 2009 through September 15, 2010 means the entire Airgas board as it was constituted before the September 15 annual meeting. After the September 15, 2010 meeting, I will discuss in detail the facts relating to Air Products’ $70 offer and the actions of the “new” Airgas board, including the three Air Products nominees.

As of the record date for the 2010 annual meeting, Airgas had 83,629,731 shares outstanding. From October 2009 (when Air Products privately approached Airgas about a potential deal) until today, Airgas’s stock price has ranged from a low of $41.64 35 to a high of $71.28. 36 For historical perspective, before then it had been trading in the $40s and $50s (with a brief stint in the $60s) through most of 2007-2008, until the financial crisis hit in late 2008. The stock price dropped as low as $27 per share in March of 2009, but quickly recovered and jumped back into the mid-$40s. In the board’s unanimous view, the company is worth at least $78 in a sale transaction at this time ($60-ish unaffected stock price plus a 30% premium), and left alone, most of the Airgas directors “would say the stock will be worth north of $70 by next year.” 37 In the professional opinion of one of Airgas’s independent financial advisors, the fair value of Airgas as of January 26, 2011 is “in the mid to high seventies, and well into the mid eighties.” 38 McCausland currently owns approximately 9.5% of Airgas common stock. The other directors collectively own less than 2% of the outstanding Airgas stock. Together, the ten current Airgas directors own approximately 11% of Airgas’s outstanding stock.

*62 B. Airgas’s Anti-Takeover Devices

As a result of Airgas’s classified board structure, it would take two annual meetings to obtain control of the board. In addition to its staggered board, Airgas has three main takeover defenses: (1) a shareholder rights plan (“poison pill”) with a 15% triggering threshold, 39 (2) Airgas has not opted out of Delaware General Corporation Law (“DGCL”) § 203, which prohibits business combinations with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, unless certain conditions are met, 40 and (3) Airgas’s Certificate of Incorporation includes a supermajority merger approval provision for certain business combinations. Namely, any merger with an “Interested Stockholder” (defined as a stockholder who beneficially owns 20% or more of the voting power of Airgas’s outstanding voting stock) requires the approval of 67% or more of the voting power of the then-outstanding stock entitled to vote, unless approved by a majority of the disinterested directors or certain fair price and procedure requirements are met. 41

Together, these are Airgas’s takeover defenses that Air Products and the Shareholder Plaintiffs challenge and seek to have removed or deemed inapplicable to Air Products’ hostile tender offer.

C. Airgas’s Five-Year Plan

In the regular course of business, Airgas prepares a five-year strategic plan approximately every eighteen months, forecasting the company’s financial performance over a five year horizon. 42 In the fall of 2007, Airgas developed a five-year plan predicting the company’s performance through fiscal year 2012. The 2007 plan included two scenarios: a strong economy case and a weakening economy case. 43 Airgas generally has a history of meeting or beating its strategic plans, but it fell behind its 2007 plan when the great recession hit. 44 At the time of the October trial, Airgas was running about six months behind the weakening economy case, and about a year and a half behind the strong economy case. 45

In the summer of 2009, Airgas management was already working on an updated five-year plan. 46 The 2009 plan included only a single scenario: a “base” case or “slow and steady recovery in the economy.” 47 The 2009 five-year plan was com *63 pleted and distributed to the Airgas directors before November 2009, and the plan was formally presented to the board at its November 2009 strategic planning retreat. 48

D. Air Products Privately Expresses Interest in Airgas

1. The $60 all-stock offer

Air Products first became interested in a transaction with Airgas in 2007, 49 but did not pursue a transaction at that time because Airgas’s stock price was too high. 50 Then the global recession hit, and in the spring or summer of 2009, Air Products’ interest in Airgas was reignited. 51 On September 17, 2009, the Air Products board of directors authorized McGlade to approach McCausland and discuss a possible transaction between the two companies/ 52 The codename for the project was “Flashback,” because Air Products had previously been in the packaged gas business and wanted to “flash back” into it. 53

On October 15, 2009, McGlade and McCausland met at Airgas’s headquarters. 54 At the meeting, McGlade conveyed Air Products’ interest in a potential business combination with Airgas and proposed a $60 per share all equity deal. 55 After the meeting, McCausland reported the substance of his conversation with McGlade to Les Graff, Airgas’s Senior Vice President for Corporate Development, who took typewritten notes which he called “Thin Air.” 56 As Graffs notes corroborate, during the meeting McGlade communicated Air Products’ views on the strategic benefits and synergies that a transaction could yield, noting that a combination would be immediately accretive. 57 *64 McCausland told McGlade that it was “not a good time” to sell the company 58 but that he would nevertheless convey the proposal to the Airgas board. 59

Shortly thereafter, McCausland telephoned Thacher Brown, Airgas’s then-presiding director, to inform him of the offer and ask whether he thought it was necessary to call a special meeting of the board to consider Air Products’ proposal. 60 Brown said he did not think so, since the entire board was already scheduled to meet a few weeks later for its strategic planning retreat. 61 McCausland suggested that he would reach out to Airgas’s legal and financial advisors to solicit their advice, which Brown thought was a good idea. 62

At its three-day strategic planning retreat from November 5-7, 2009, in Kiawah, South Carolina, the full board first learned of Air Products’ proposal. 63 In advance of the retreat, the board had received copies of the five-year strategic plan, which served as the basis for the board’s consideration of the $60 offer. 64 The board also relied on a “discounted future stock price analysis” (the “McCausland Analysis”) that had been prepared by management at McCausland’s request to show the value of Airgas in a change-of-control transaction. 65

After reviewing the numbers, the board’s view on the inadequacy of the offer was not even a close call. The board agreed that $60 was “just so far below what we thought fair value was” that it would be harmful to Airgas’s stockholders *65 if the board sat down with Air Products. 66 In the board’s view, the offer was so “totally out of the range” of what might be reasonable that beginning negotiations at that price would send the wrong message — that Airgas would be willing to sell the company at a price that is well below its fair value. 67 Thus, the board unanimously concluded that Airgas was “not interested in a transaction.” 68 No one on the Airgas board thought it made sense to have any further discussions with Air Products at that point. 69 On November 11, McCausland called McGlade to inform him of the board’s decision. 70

On November 20, 2009, McGlade sent a letter to McCausland essentially putting in writing the offer they had been discussing over the last month — that is, Air Products offered to acquire all of Airgas’s outstanding shares for $60 per share on an all-stock basis. 71 The letter suggested that the $60 offer was negotiable and requested a meeting with Airgas to explore additional sources of value. 72 The letter also requested a “formal response.” 73

2. Airgas Formally Rejects the Ojfer

Perhaps annoyed at the request for a formal response to the same offer the board had already rejected, McCausland had his secretary circulate to the Airgas board and its advisors and management team his response letter to McGlade, written with a derogatory salutation. 74 This letter was not sent, but McCausland did send a real letter to McGlade that day informing him that the Airgas board would meet in early December to consider the proposal. 75

The board held a special telephonic meeting on December 7, 2009. 76 In the hour-long call, Graff presented a detailed *66 financial analysis of the offer. 77 McCaus-land advised the board that management had “spent a great deal of time ... meeting with [Airgas’s] financial advisors and legal team, studying valuation and related issues,” and that the management team recommended that the board reject the offer. 78 Brown stated his belief that “nothing had changed since November, that the proposal should be rejected and that attention should be turned to next steps.” 79 The board then unanimously supported management’s recommendation to reject the offer and to decline Air Products’ request for a meeting. 80

Accordingly, McCausland sent a letter to McGlade the following day conveying the board’s formal response to the November 20 proposal: “We are not interested in pursuing your company’s proposal and do not believe that any purpose would be served by a meeting.” 81

3. The $62 cash-stock offer

On December 17, 2009, McGlade sent McCausland a revised proposal, raising Air Products’ offer to an implied value of $62 per share in a cash-and-stock transaction, and reiterating Air Products’ “continued strong interest in a business combination with Airgas.” 82 McGlade explained that Air Products’ original proposal of structuring a potential combination as an all-stock deal was intended to allow Airgas’s stockholders to share in the “expected appreciation of Air Products’ stock as the synergies of the combined companies are realized.” 83 Nonetheless, to address Airgas’s concern that Air Products’ stock was an “unattractive currency” for a potential transaction, Air Products was “prepared to offer cash for up to half of the $62 per share” they were offering. 84

McGlade again expressed Air Products’ willingness to try to negotiate with Airgas on price and requested a meeting between the two companies, writing:

If you believe there is incremental value above and beyond our increased offer, we stand willing to listen and to understand your points on value with a view to sharing increased value appropriately with the Airgas shareholders.... Our teams should meet at this point in the process to move forward in a manner that best serves the interest of our respective shareholders. To that end, we and our advisors are formally requesting to meet with you and your advisors as soon as possible to explore additional sources of value in Airgas and to move expeditiously to consummate a transaction. 85

The Airgas board held a two-part meeting to consider this revised proposal. First, a special telephonic meeting was *67 held on December 21, 2009. 86 Graff discussed the financial aspects of the $62 offer. 87 He noted that the offer price remained low, 88 and explained that with a 50/50 cash-stock split, Air Products could bid well into the $70s and still maintain its credit rating. 89 The call lasted about thirty-five minutes. 90 The board reconvened (again, by telephone) on January 4, 2010 and the discussion resumed. 91 Again, Graff presented financial analyses of the December 17 proposal based on discussions he and other members of management had had with Airgas’s investment bankers. 92 He advised the board that the bankers agreed the offer was inadequate and well below the company’s intrinsic value, 93 and the board unanimously agreed with management’s recommendation to reject the offer. 94

On January 4, 2010, McCausland sent a letter to McGlade communicating the Air-gas board’s view that Air Products’ offer “grossly undervalues Airgas.” 95 The letter continued: “[T]he [Airgas] Board is not interested in pursuing your company’s proposal and continues to believe there is no reason to meet.” 96

On January 5, 2010, McCausland exercised 300,000 stock options, half of which were set to expire in May 2010, and half of which were set to expire in May 2011. 97

*68 E. Air Products Goes Public

By late January 2010, it was becoming clear that Air Products’ private attempts to negotiate with the Airgas board were going nowhere. The Airgas board felt that it was “precisely the wrong time” 98 to sell the company and thus it continued to reject Air Products’ advances. So, Air Products decided to take its offer directly to the Airgas stockholders. On January 20, 2010, McGlade sent a letter to the Air Products board expressing his belief that:

[N]ow is the time to acquire Flashback — their business has yet to recover, the pricing window is favorable, and our ability (should we so choose) to offer an all-cash deal would be viewed very favorably in this market. To take advantage of the situation, we believe we will have to go public with our intentions if we are to get serious consideration by Flashback’s board. 99

Shortly thereafter, Air Products did just that. On February 4, 2010, Air Products sent a public letter to the Airgas board announcing its intention to proceed with a fully-financed, all-cash offer to acquire all outstanding shares of Airgas for $60 per share. 100 The letter closed with McGlade again reiterating Air Products’ full commitment to completing a transaction with Airgas, and emphasizing Air Products’ “willingness to reflect in our offer any incremental value you can demonstrate.” 101

On February 8-9, 2010, the Airgas board met in Philadelphia, Pennsylvania. 102 *69 The board’s financial advisors from Goldman Sachs and Bank of America Merrill Lynch provided written materials and made presentations to the board regarding Air Products’ proposal. 103 The bankers reviewed Airgas management’s financial projections, research analysts’ estimates for Airgas, discounted cash flow valuations of Airgas using various EBITDA multiples and discount rates, historical stock prices, and the fact that Airgas generally emerges later from economic recessions than Air Products. 104 At the meeting, the board unanimously agreed that the $60 price tag was too low, and that it “significantly undervalued Airgas and its future prospects.” 105 The board also unanimously authorized McCausland to convey the board’s decision to reject the offer to McGlade, 106 which he did the following day. 107

F. The $60 Tender Offer

On February 11, 2010, Air Products launched its tender offer for all outstanding shares of Airgas common stock on the terms announced in its February 4 letter— $60 per share, all-cash, structurally non-coercive, non-discriminatory, and backed by secured financing. 108 The tender offer is conditioned, among other things, upon the following:

(1) a majority of the total outstanding shares tendering into the offer;

(2) the Airgas board redeeming its rights plan or the rights otherwise having been deemed inapplicable to the offer;

(3) the Airgas board approving the deal under DGCL § 203 or DGCL § 203 otherwise having been deemed inapplicable to the offer;

(4) the Airgas board approving the deal under Article VI of Airgas’s charter or Article VI otherwise being inapplicable to the offer;

(5) certain regulatory approvals having been met; 109 and

*70 (6) the Airgas board not taking certain action (i.e., entering into a third-party agreement or transaction) that would have the effect of impairing Air Products’ ability to acquire Air-gas. 110

Air Products’ stated purpose in commencing its tender offer is “to acquire control of, and the entire equity interest in, Airgas.” 111 To that end, it is Air Products’ current intention, “as soon as practicable after consummation of the Offer,” to seek to have Airgas consummate a proposed merger with Air Products valued at an amount in cash equal to the highest price per share paid in the offer. 112 Air Products also announced its intention to run a proxy contest to nominate a slate of directors for election to Airgas’s board at the Airgas 2010 annual meeting. 113

On February 20, 2010, the Airgas board held another special telephonic meeting to discuss Air Products’ tender offer. 114 Air-gas’s financial advisors from Goldman Sachs and Bank of America Merrill Lynch reviewed the bankers’ presentations with the board, 115 which were similar to the presentations that had been made to the board on February 8, and concluded that the offer “was inadequate from a financial point of view.” 116

In a 14D-9 filed with the SEC on February 22, 2010, Airgas recommended that its shareholders not tender into Air Products’ offer because it “grossly undervalues Airgas.” 117 In explaining its reasons for recommending that shareholders not accept Air Products’ offer, Airgas’s filing stated that the timing of the offer was “extremely opportunistic ... in light of the depressed value of the Airgas Common shares prior to the announcement of the Offer,” so while the timing was excellent for Air Products, it was disadvantageous to Airgas. 118 The filing went on to explain that Airgas had received inadequacy opinions from its financial advisors, Goldman Sachs and Bank of America Merrill Lynch. 119 In addition, Airgas expressed its view that the offer was highly uncertain and subject to significant regulatory concerns. 120 Finally, attached to the filing was a fifty-page slide presentation entitled “Our Rejection of Air Products’ Propos- *71 ais.” 121

G. The Proxy Contest

On March 13, 2010, Air Products nominated its slate of three independent directors for election at the Airgas 2010 annual meeting. 122 The three Air Products nominees were:

• John P. Clancey; 123

• Robert L. Lumpkins; 124 and

• Ted B. Miller, Jr. 125 (together, the “Air Products Nominees”).

*72 Air Products made clear in its proxy materials that its nominees to the Airgas board were independent and would act in the Airgas stockholders’ best interests. Air Products told the Airgas stockholders that “the election of the Air Products Nominees ... will establish an Airgas Board that is more likely to act in your best interests.” 126 Air Products actively promoted the independence of its slate, saying that its three nominees:

• “are independent and do not have any prior relationship with Airgas or its founder, Chairman and Chief Executive Officer, Peter McCausland:” 127

• “will consider without any bias [the Air Products] Offer;” 128

• “will be willing to be outspoken in the boardroom about their views on these issues;”