WILMINGTON, Del./NEW YORK Air Products & Chemicals Inc (APD.N) ended its year-long battle to buy Airgas Inc ARG.N after a judge upheld Airgas's use of a "poison pill" defense against the hostile $5.9 billion takeover offer.
The onus is now on Airgas to prove it is worth at least $78 per share, the amount it had demanded from Air Products in the buyout saga's last days.
Airgas shares have never touched that level, and in after-hours trading on Tuesday the stock dipped 3.9 percent to $61.25.
"It has always been our objective to create value for our stockholders, and we remain committed to achieving that goal," said Peter McCausland, the founder and chief executive of Airgas.
Air Products Chief Executive John McGlade has long said he would not pay more than $70 per share for Airgas.
"We believe the Airgas board of directors has done a great disservice to Airgas shareholders by never allowing them to decide for themselves whether they want to accept our $70 per share all-cash offer," said John McGlade, chairman of Air Products.
Airgas sells packaged gas canisters of oxygen, argon and other gases to thousands of hospitals, contractors and retailers across North America.
It's that intimate customer relationship that Air Products wanted so badly.
As Airgas's performance waned during the recession -- revenue, profit and the stock all dropped -- Air Products took the opportunity to make an offer for Airgas that it eventually raised several times. It hoped to reenter the U.S. packaged gas business and eclipse Praxair Inc (PX.N) to become the largest North American industrial gas company.
A shareholder defense plan, commonly known as a "poison pill," is meant to give a board of directors time to find alternatives and explain to shareholders why a hostile bid is inadequate.
The measure has been criticized as a way for management to entrench itself at the expense of shareholders, who are prevented from accepting the offer.
The judge in the case said that methods for defeating a poison pill have been in place since 1985 and his ruling does not endorse a "just say no" approach to a hostile bid.
"As this case demonstrates, in order to have any effectiveness, pills do not -- and can not -- have a set expiration date," wrote Judge William Chandler of Delaware's Chancery Court in his 158-page opinion.
The ruling comes just as big corporate mergers are becoming increasingly frequent following a drought during the 2007-2009 recession.
"It's disappointing," said Charles Elson, corporate governance professor at the University of Delaware. "There's nothing wrong with the pill but with a staggered board it's a toxic cocktail and ultimately counter-productive to long-term shareholder value."
A staggered board prevents a hostile bidder from electing a new slate of directors at one time as only a few board seats are up for election in any given year.
The cases are Air Products and Chemicals Inc v Airgas Inc et al, Delaware Chancery Court, No. 5249 and In re Airgas Inc Shareholder Litigation, No 5256.
(Reporting by Tom Hals, Michael Erman and Ernest Scheyder; Editing by Steve Orlofsky, Gary Hill)