September 7, 2010
Will the 'Just Say No' Defense Ever Get Litigated?
I'm of the mind that the answer to that question is likely no. In his Stanford Law Review paper of a few years ago (Professorial Bear Hug), Vice Chancellor Strine made it clear that ... well ... it wasn't clear. Of course we professors would like a court to rule once and for all on the question of whether a classified board can simply sit on its poison pill in the face of an unsolicited offer. The courts, I think, are happy with this constructive ambiguity as it relates to the limits of the uses of a pill. For example, the Federal District Court in Delaware suggested in Moore v Wallace (persuasive, but not precedent) that a Delaware state court might permit the defense. Vice Chancellor Allen in Interco, on the other hand, made it clear that there were limits to such a defense and employed a Unocal analysis with respect to 'threats' facing the corporation. Allen understood threats to be of only of two types: threats to voluntariness and the threat of a inadequate price. In context of a single-tier, all-cash bid, there is no threat to voluntariness, there is just the threat that the bid is inadequate. In any event, the Supreme Court rejected that analysis in Paramount v Time leaving us really at sea as to the limits of a 'just say no' defense. The 'just say no' defense really lies at the heart of the most crucial discussion in the corporate law - who should make the decision about the fundamental future of the corporation: the board or the stockholders. You'd think it would eventually get litigated once and for all.
A few months ago it looked like we might have a chance to see it happen. Air Products launched an all cash tender offer for Airgas. Airgas just sat on its pill and said 'no.' Air Products then filed suit. Here's a copy of the complaint. I came to the realization last week that this case would never get before a chancellor. It's scheduled in the Chancery Court for October 1, but that it turns out is just creative scheduling. In fact, it will likely never get that far.
Airgas' shareholder's meeting at which shareholders will likely decide the fate of Air Products' offer is scheduled for September 15. Over the weekend, Air Products upped its offer to $65.50, a whopping 50% premium over the prebid price for Airgas. Air Products also announced that if it is unsuccessful in its proxy contest, it will walk away and not pursue Airgas further. And just like that, the challenge to the 'just say no' defense will go away. Litigating this issue will likely have to wait for another day, unless of course Air Products succeeds in the proxy contest and elects three of its own directors and the remaining directors continue to fight.
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