M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, February 10, 2010

"Just Say No" Challenge in Del.

Last week Air Products filed a suit in Delaware Chancery Court challenging Airgas' "Just Say No" defense. This has the makings of being an important case if it gets as far as a ruling.  

On the one side, we have Air Products launching a financed all-cash off for $60 (38% premium).  On the other side we have a board that is apparently uninterested in the offer and has turned it down as undervaluing Airgas. The board has a pill in place and has not opted out of DGCL Sec. 203.  The only other case we have challenging the "Just Say No" defense is Moore v Wallace (Fed Dist. Court Del).  In Moore v Wallace the Federal District Court interpreted Delaware law as permitting such a defense. The Chancery Court has never actually ruled on the issue, however.

Of course, this isn't a perfect set of facts.  It would be better if the Airgas had neither a pill nor 203 defenses in place.  As it is, the board's decision to sit on its pill and not waive 203 will likely be subject to Unocal review.  Nevertheless, this case may give the Chancery Court an opportunity to rule on the "Just Say No" defense.  Appropriately enough, Wachtell Lipton is serving as Airgas' legal counsel.



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What about Interco?

Posted by: Steve | Feb 10, 2010 6:10:53 AM

>>It would be better if the Airgas had neither a pill nor 203 defenses in place.>>

If they didn't have these defenses, there would be no need for litigation. Airgas shareholders could tender and Air Products could buy.

Posted by: fusion | Feb 11, 2010 3:52:05 AM

True enough. Without the defenses, this would be quite boring. So, I guess the only way this case ends up in court is with the defenses in place. In fact, the targets in Moore v Wallace and Capital Cities v Interco had similar defenses in place when board refused to deal with a potential buyer. So, one might think of this case as a Moore v Wallace II, but in the Delaware Chancery Court.

With respect to Interco, Chancellor Allen reasoned that in the face of an single-tier, all-cash offer, there is no threat shareholder coercion. The only cognizable threat to the corporation at that point is that the offer is inadequate. Inadequacy of an offer is a decision that can be left to the shareholders, so at that point, a pill is serving no other purpose and should be pulled to permit the shareholders to decide. At some point, "just saying no" will not be enough. Now, that seems totally reasonable to me. Actually, I like Allen's approach. Although it may conflict some with understandings of 141(a) - to the extent one believes evaluation of an end-of-life decision for the corporation is solely a question for the board or not- on balance, I think it's the right direction.

The Delaware Supreme Court, on the other hand, didn't think so highly of the Interco decision In Paramount v Time the following year, the court rejected Allen's threat analysis as "a narrow and rigid construction of Unocal."

Indeed, the court in Time went further, "[A]bsent a limited set of circumstances as defined under Revlon, a board of directors, while always required to act in an informed manner, is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover," thus setting up a line of cases that takes us all the way to Lyondell.

This isn't Chancellor Allen's Chancery Court anymore. I wouldn't be surprised if this case makes far enough that we will see the Delaware Chancery Court finally endorse the "just say no" defense.

Posted by: bjmq | Feb 11, 2010 5:52:43 AM

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