Sunday, February 6, 2011
Chancellor Chandler issued his ruling yesterday upholding the poison pill Airgas, Inc.'s board of directors adopted in response to Air Products and Chemicals, Inc.'s $5.8 billion hostile takeover ($70/share, all cash). Chancellor Chandler determined that the Airgas board of directors "acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate.” (PDF of the case here, thanks to Francis G.X. Pileggi.)
One reason this decision bugs me is that I suspect a good number of people who don't like insider trading restrictions would be supportive of this decision. To me, it's the same question: What does the shareholder want for his or her shares? Period.
For some who don't like insider trading restrictions, they argue that, at least in non-face-to-face insider trading transactions, the sharedholder did not suffer harm. (See, e.g., Henry Manne.) Sharedholders were offered a price they deemed acceptable, and sold. Who cares who was on the other side of the transaction? I find parts of this rationale compelling, although I also find the property rights concerns related to insider trading even more compelling. (See, e.g., Professor Bainbridge.)
For me, the anti-insider-trading rationale holds true in this case, too. If shareholders would accept the price, and there is no concern about the value of the payment (and there can't be in an all-cash offer), the board should make their case and get out of the way.
The board is supposed to facilitate profit maximizing for shareholders. This can take many forms, and the process is subject to legitimate board decisions to balance short- and long-term prospects. Thus, there should be a lot of latitude for the board to exercise their authority, expertise, and judgment.
That said, I can't see a good justification for not presenting an all-cash offer to shareholders once (as was the case here) ample time has been given to entice other potential bidders into the game. That's one decision that should always be the sharedholder's call.