OPINION

CHANDLER, Chancellor.

                         TABLE OF CONTENTS

INTRODUCTION.......................................................................... 55

I. FACTS.............................................................................. 58
   BACKGROUND FACTS................................................................... 58
   A. The Parties..................................................................... 59
      1. Air Products................................................................. 59
      2. Shareholder Plaintiffs....................................................... 60
      3. Airgas Defendants ........................................................... 60
   B. Airgas's Anti-Takeover Devices.................................................. 62
   C. Airgas's Five-Year Plan......................................................... 62
   D. Air Products Privately Expresses Interest in Airgas............................. 63
      1. The $60 all-stock offer...................................................... 63
      2. Airgas Formally Rejects the Offer............................................ 65
      3. The $62 cash-stock offer..................................................... 66
   E. Air Products Goes Public........................................................ 68
   F. The $60 Tender Offer............................................................ 69
   G. The Proxy Contest............................................................... 71
   H. Airgas Delays Annual Meeting.................................................... 73
   I. The $63.50 Offer................................................................ 73
   J. Tension Builds Before the Annual Meeting........................................ 75
   K. The $65.50 Offer................................................................ 76
   L. "With $65.50 on the table, the stockholders wanted the parties to engage."...... 76
   M. The Annual Meeting.............................................................. 77
   N. The Bylaw Question ............................................................. 77
   O. The October Trial............................................................... 78

   FACTS DEVELOPED AT THE SUPPLEMENTAL EVIDENTIARY
     HEARING.......................................................................... 79

   P. Representatives from Airgas and Air Products Meet............................... 80

   Q. More Post-Trial Factual Developments ........................................... 82
      1. The Air Products Nominees and the November 1-2 Airgas Board
           Meeting.................................................................... 82
      2. December 7-8 Airgas Board Letters............................................ 84
   R. The $70 "Best and Final" Offer 64 .............................................. 85
   S. The Airgas Board Unanimously Rejects the $70 Offer.............................. 88

II. STANDARD OF REVIEW ............................................................... 91
   A. The Unocal Standard............................................................. 91
   B. Unocal—Not the Business Judgment Rule—Applies Here.................. 93
   C. A Brief Poison Pill Primer—Moran and its Progeny.......................... 94
   D. A Note on TW Services.......................................................... 101

III. ANALYSIS........................................................................ 103

   A. Has the Airgas Board Established That It Reasonably Perceived the
      Existence of a Legally Cognizable Threat?...................................... 103
      1. Process..................................................................... 103
      2. What is the "Threat" ....................................................... 104
   B. Is the Continued Maintenance of Airgas's Defensive Measures
        Proportionate to the "Threat" Posed by Air Products' Offer?.................. 113
      1. Preclusive or Coercive...................................................... 113
      2. Range of Reasonableness..................................................... 122
   C. Pills, Policy and Professors (and Hypotheticals)............................... 126

CONCLUSION........................................................................... 128

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?

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 Airgas 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 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 evidentiary 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 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 Airgas'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 "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 "[d]irectors 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 Unitrin, 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' own 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 their 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 evidentiary 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 leading roles at the October trial.17

From Air Products:

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 include 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 hardgoods.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 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. Wolf31 (together with McCausland, "director defendants," and collectively with Airgas, "defendants").32

At the 2010 annual meeting, three Airgas 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 $41.6435 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.

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 completed 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 Graff's 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 McCausland told McGlade that it was "not a good time" to sell the company58 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 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 Offer

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 financial analysis of the offer.77 McCausland 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:

The Airgas board held a two-part meeting to consider this revised proposal. First, a special telephonic meeting was 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 Airgas 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

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:

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 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 noncoercive, non-discriminatory, and backed by secured financing.108 The tender offer is conditioned, among other things, upon the following:

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 Airgas'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' Proposals."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:

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:

In addition to its proposed slate of directors, Air Products also announced that it was seeking approval by Airgas stockholders of three bylaw proposals that would:

Over the next several months leading up to Airgas's 2010 annual meeting, both Air Products and Airgas proceeded to engage in a protracted "high-visibility proxy contest widely covered by the media,"132 during which the parties aggressively made their respective cases to the Airgas stockholders. Both Airgas and Air Products made numerous SEC filings, press releases and public statements regarding their views on the merits of Air Products' offer.133

H. Airgas Delays Annual Meeting

In April 2010, the Airgas board amended Article II of the company's bylaws (which addressed the timing of Airgas's annual meetings), giving the board the ability to push back Airgas's 2010 annual meeting.134 Previously, the bylaws required that the annual meeting be held within five months of the end of Airgas's fiscal year—March—which would make August the annual meeting deadline. The amendment allowed the meeting to be held "on such date as the Board of Directors shall fix."135 In other words, the board gave itself full discretion to set the date of the annual meeting as it saw fit.136 As it turns out, the reason the board pushed back the meeting date was to buy itself more time to "provide information to stockholders" before the annual meeting, as well as more time to "demonstrate performance of the company."137 The annual meeting was scheduled for September 15, 2010.138

I. The $63.50 Offer

On July 8, 2010, Air Products raised its offer to $63.50.139 Other than price, all other material terms of the offer remained unchanged.140 The following day, McGlade sent a letter to the Airgas board reiterating (once again) Air Products' willingness to negotiate, and inviting the Airgas board and its advisors to sit down with Air Products "to discuss completing the transaction in the best interests of the shareholders of both companies."141

The Airgas board held two special telephonic meetings to consider the revised $63.50 offer. The first was held on July 15, 2010.142 McLaughlin updated the board on Airgas's performance for the first quarter of fiscal year 2011143 and the financial advisors provided updated financial analyses.144 On the second call, held on July 20, 2010, Rensky and Carr each described their respective opinions that the $63.50 offer was "inadequate to the [Airgas] stockholders from a financial point of view,"145 and the financial advisors issued written inadequacy opinions to that effect.

The next day, McCausland sent a public letter to McGlade rejecting Air Products' revised offer and invitation to meet because $63.50 "is not a sensible starting point for any discussions or negotiations."146 Also on July 21, 2010, Airgas filed an amendment to its 14D-9, rejecting the $63.50 offer as "grossly inadequate" and recommending that Airgas stockholders not tender their shares.147 In this filing, Airgas set out many of the reasons for its recommendation, including its view that the offer "grossly undervalue[d]" Airgas because it did not reflect the value of Airgas's future prospects and strategic plans, the fact that Airgas tends to lag in entering into, and emerging from, economic recessions, Airgas's extraordinary historical results, Airgas's unrivaled platform in the packaged gas business, the "extremely opportunistic" timing of Air Products' offer, the inadequacy opinions provided to the board by Airgas's financial advisors, and many other reasons.148 The financial advisors' written inadequacy opinions were attached to the filing.149 Airgas also released another slide presentation (33 pages this time), entitled "It's All About Value," containing (among other things) updated projections and earnings guidance, board plans for cost savings, and information about Airgas's implementation of its SAP system,150 and explaining why Airgas presents "significant strategic value" to a potential acquiror.151 Two days later, on July 23, 2010, Airgas filed its definitive proxy statement for the September annual meeting, urging stockholders to vote against the three Air Products Nominees and the bylaw amendments and to wait until "Airgas's growth potential can be fully demonstrated and reflected in its results."152

J. Tension Builds Before the Annual Meeting

Air Products filed its definitive proxy statement on July 29, 2010.153 Air Products was explicit in its proxy materials that its proposed bylaws were directly related to its pending tender offer, telling stockholders that by voting in favor of its nominees and bylaw proposals, they would be "send[ing] a message to the Airgas Board and management that . . . Airgas stockholders want the Airgas Board to take action to eliminate the obstacles to the consummation of the [Air Products] Offer."154 At the same time, Airgas heavily lobbied its stockholders to vote against the proposed bylaws, urging them not to fall for Air Products' "tactics," and telling them that the Air Products offer was well below the fair value of their shares and that, by shortening the time it would take for Air Products to gain control of the board, voting in favor of the January meeting bylaw would help facilitate Air Products' grossly inadequate offer.155 As part of its efforts to dissuade stockholders from voting for Air Products' nominees and the proposed bylaw requiring annual meetings to be held in January, Airgas promised its stockholders that it would hold a special meeting on June 21, 2011 where the stockholders would have the opportunity to elect a majority of the Airgas board by a plurality vote—but only if Air Products' bylaw proposal did not receive a majority of votes at the 2010 annual meeting.156

K. The $65.50 Offer

On September 6, 2010, Air Products further increased its offer to $65.50 per share.157 Again, the rest of the terms and conditions of the February 11, 2010 offer remained the same.158 In connection with this increased offer, Air Products threatened to walk if the Airgas stockholders did not elect the three Air Products Nominees to the Airgas board and vote in favor of Air Products' proposed bylaw amendments at the 2010 annual meeting.159

The next day, the Airgas board met to consider Air Products' revised offer.160 The board received updated analyses from McLaughlin and inadequacy opinions from its bankers.161 The board unanimously rejected the $65.50 offer as inadequate,162 saying that it was "not an appropriate value or a sensible starting point for negotiations to achieve such a value."163 Airgas also filed an amendment to its Schedule 14D-9 on September 8, 2010, recommending that stockholders reject the offer and not tender their shares.164

L. "With $65.50 on the table, the stockholders wanted the parties to engage."165

On September 10, in advance of the annual meeting, McCausland, Thomas, and Brown (along with Airgas's financial advisors, Rensky and Carr, and representatives of Airgas's proxy solicitor, Innisfree) held a series of meetings with about 25-30 Airgas stockholders—mostly arbs, hedge funds, and institutional holders.166 At every meeting, the sentiment was the same, "Why don't you guys go negotiate, sit down with Air Products."167 The answer was simple: the offer was unreasonably low; it was not a place to begin any serious negotiations about fair value. If Air Products "were to offer $70, with an indication that they were ready to sit down and have a full and fair discussion about real value and negotiate from that, what we both could agree was fair value for the company, [Thomas], for one, would be prepared to have that sit-down discussion."168 Brown and McCausland said the same thing.169 During the course of two days of meetings with stockholders, McCausland expressed this view to "[m]aybe a hundred" people—he expected word to get back to Air Products.170

Although none of the stockholders attending these meetings said that they wanted Airgas to do a deal with Air Products at $65.50,171 the general sentiment was not, "Hell, no, we don't want you to even talk to these people if they're at 65.50"—rather, the "clear message [was:] With 65.50 on the table, the stockholders wanted the parties to engage."172

Rather than engaging with each other directly (i.e. McGlade and McCausland), Air Products' financial advisors at J.P Morgan (Rodney Miller) and Perella Weinberg (Andrew Bednar) called Airgas's financial advisors (Rensky and Carr). Word had gotten back to Bednar and Miller that some Airgas board members had indicated that there might be "reason to sit down together" if Air Products made an offer at "$70 with the willingness to negotiate upwards from there."173 Airgas's advisors welcomed a revised offer, but over that weekend before the annual meeting, none came. Air Products' bankers at that point "could not get to $70 a share . . . Air Products was not at that number."174

Counsel for Air Products (James Woolery) met with Carr and Rensky during Airgas's annual meeting on September 15. Woolery asked for assurance that if Air Products offered $70 per share, Airgas would agree to a deal at that price.175 Airgas's bankers could not give Woolery the assurance he was looking for, and discussions stalled.176

M. The Annual Meeting

On September 15, 2010, Airgas's 2010 annual meeting was held. The Airgas stockholders elected all three of the Air Products Nominees to the board, and all three of Air Products' bylaw proposals were adopted by a majority of the shares voted.177 On September 23, 2010, John van Roden was unanimously appointed Chairman of the Airgas board, and McCausland was unanimously reappointed to the board.178

N. The Bylaw Question

After the annual meeting results were preliminarily calculated, Airgas immediately filed suit against Air Products in the Delaware Court of Chancery to invalidate the January meeting bylaw. Briefing was completed on an expedited basis, and oral arguments on cross-motions for summary judgment were heard on October 8, 2010. That afternoon, the Court issued its decision upholding the validity of the January meeting bylaw.179 Airgas appealed, and ultimately the Delaware Supreme Court reversed the decision, invalidating the bylaw and holding that annual meetings must be spaced "approximately" one year apart.180 Airgas's current expectation is that its 2011 annual meeting will be held in August or early September 2011.181

O. The October Trial

As a result of both sides having aggressively campaigned for months leading up to Airgas's 2010 annual meeting, the evidence presented at the October trial made clear that, at the time of the September annual meeting, the Airgas stockholders had all of the information they needed to evaluate Air Products' $65.50 offer. The testimony from Airgas's own directors and management demonstrated as much:

The evidence at trial also incontrovertibly demonstrated that $65.50 was not as high as Air Products was willing to go. As Huck unequivocally stated, "65.50 is not our best and final offer."190 And as McGlade testified:

In addition, Air Products made clear that if Airgas were stripped of its defenses at that point, Air Products would seek to close on that $65.50 offer.191 So Air Products was moving forward with an offer that admittedly was not its highest and aggressively seeking to remove Airgas's defensive impediments standing in its way. At the same time, Airgas's stockholders arguably knew all of this, and knew whatever information they needed to know in order to make an informed decision on whether they wanted to tender into Air Products' "grossly inadequate" and not-yet-best offer.192

FACTS DEVELOPED AT THE SUPPLEMENTAL EVIDENTIARY HEARING

I pause briefly to introduce some additional players who joined the story mid-game. In addition to McGlade and Huck (Air Products), and McCausland (Airgas), the following individuals featured prominently in the supplemental evidentiary hearing.

From Air Products: William L. Davis, Air Products' Presiding Director. From Airgas: John Clancey and Ted Miller, two of the Air Products Nominees elected to the Airgas board at the September 15, 2010 annual meeting. The new financial advisor: David DeNunzio, the investment banker from Credit Suisse, Airgas's recently-retained third outside financial advisor. Finally, the experts: Peter Harkins resumed his role as Airgas's "proxy expert,"193 and Joseph J. Morrow was put on as Air Products' rebuttal "proxy expert."194 I will discuss the expert testimony in the analysis section of this Opinion.

P. Representatives from Airgas and Air Products Meet

On October 26, 2010, after announcing strong second-quarter earnings earlier that day,195 Airgas Chairman John van Roden sent a letter to McGlade. In the letter, van Roden reiterated that each of Airgas's ten directors—including the three newly-elected Air Products Nominees—"is of the view that the current Air Products offer of $65.50 per share is grossly inadequate."196 Indeed, the board viewed the current offer price as not even close to the right price for a sale of the company.197 Nevertheless, the letter showed signs that the Airgas board was willing to negotiate with Air Products:

McGlade responded enthusiastically to the letter, writing back to van Roden in a letter dated October 29, 2010:

Finally, the companies seemed to be making progress toward a potential friendly transaction. Airgas's board authorized van Roden to respond to McGlade's letter, which he did on November 2, 2010.200 The letter opened by saying that the Airgas board was "certainly prepared to meet with [Air Products] if there is a reasonable opportunity to obtain an appropriate value for the Airgas shareholders."201 Van Roden continued:

Later that day, Air Products accepted the invitation to meet despite its view that $78 per share is not "a realistic valuation for Airgas, nor ... anywhere near what [Air Products is] prepared to pay," because it nevertheless viewed any meeting to be "in the best interest of both companies."203 On November 4, 2010, principals from both companies met in person to discuss their views on the value of Airgas.204 The Airgas representatives and the Air Products representatives had differences of opinion regarding some of the assumptions each other had made underlying their respective valuations of Airgas.205 The meeting lasted for an hour and a half.206 At the conclusion of the meeting, the parties issued a disclosure stating that "no further meetings are planned."207 Although perhaps not the result the parties had hoped for, I conclude based on the evidence presented at the supplemental hearing that the November 4 meeting was in fact a legitimate attempt between the parties to reach some sort of meeting of the minds despite their disagreements over Airgas's value (as opposed to a litigation sham designed by defendants), and that both sides acted in good faith.208

Q. More Post-Trial Factual Developments

On November 23, 2010, the Supreme Court issued its decision on the bylaw issue, reversing the ruling of this Court that Airgas's next annual meeting could take place in January 2011.209 In a December 2 Letter Order ruling on certain outstanding evidentiary issues, I asked the parties if, in light of the Supreme Court's decision and the fact that now Airgas's 2011 annual meeting would under Delaware law be held approximately eight months later than it would have been had the January meeting bylaw been upheld, counsel believed the ruling had any effect on the fundamental issue remaining to be decided.210 I also asked counsel to provide supplemental briefing responding to several questions.211

Counsel's responses were due on or before December 10, 2010. Meanwhile, there had been a flurry of recent activity on the boards of both Airgas and Air Products that subsequently came to light, as the newly-elected Air Products Nominees acquainted themselves with the Airgas board, and as Air Products continued to pursue a deal and consider its strategic options.

1. The Air Products Nominees and the November 1-2 Airgas Board Meeting

At the supplemental evidentiary hearing, John Clancey, one of the Air Products Nominees, explained his views coming onto the Airgas board following the 2010 annual meeting.212 Without any other information, his initial impression of Airgas's position with respect to Air Products' offer was that, quite simply, "[i]t was no."213 Back during the course of the proxy contest, Clancey had met with ISS, who had asked what he would do if elected to the Airgas board, focusing on who he thought he would represent and what skills he would bring to the table.214 "[I]f I was elected," he told them, "I would immediately represent all the shareholders of Airgas."215 His perspective from the outset was that there was a lot of information he wanted to drill down on. He wanted the benefit of meeting with management and hearing from the financial advisors working on the situation to inform his understanding, but he came to the board with no agenda other than wanting to see if a deal could be done.216

A new-director orientation session for Clancey was held on November 1, 2010. New director orientation for Lumpkins and Miller was held on September 23, 2010. The newly-elected Air Products Nominees were given written materials in advance of their orientation sessions.217 Clancey came at the board at all different angles at the November 1 orientation.218 He challenged the board's economic assumptions in its five-year plan, probed Molinini about the SAP implementation, and asked other questions he felt were important to fully understand the situation.219 In the end, he was "very impressed."220 He concluded:

With respect to the SAP implementation, he said:

And as far as the reasonableness of the macroeconomic assumptions in the Airgas plan, in Clancey's view, "[t]hey were reasonable."223 As noted above, at the November 1-2, 2010 meeting, the board agreed to reach out to Air Products to see if they could get a deal done. Also at that meeting, the Air Products Nominees discussed with the board the possibility of forming a special negotiating committee, and they raised the subject of obtaining independent legal counsel and getting a third independent financial advisor to take a fresh look at the valuation and five-year plan, but no such action was taken at that time.224

2. December 7-8 Airgas Board Letters

On December 7, 2010, the three new directors sent a letter to van Roden formally requesting the Airgas board to authorize their retention of independent outside legal counsel and financial advisors of their choice to assist them in the event Air Products raised its offer.225 The letter also suggested that statements about the "unanimous" views of the board on issues relating to Air Products' offer may have "become misleading."226

Specifically, the three Air Products Nominees sought to clarify their view regarding the statement in the November 2, 2010 letter from van Roden to McGlade that "the [Airgas] board has unanimously concluded that it believes that the value of Airgas in a sale is at least $78 per share."227 The Air Products Nominees explained:

Van Roden responded by letter to the three Air Products Nominees the next day, stating that all of the statements that Airgas has made to the Court and publicly have been accurate.229 The letter also stated that while all of the other directors were satisfied with the analyses performed by Airgas's two outside financial advisors, the board agreed to the retention of a third independent financial advisor to advise the Airgas board, to be selected by the nine independent directors.230

The evidence at the supplemental evidentiary hearing revealed that the December 7 letter from the three newly-elected board members was "meant as leverage" in their efforts to prompt the rest of the board to act on their request for a third independent financial advisor.231 Clancey explained, "We wanted a financial advisor and [] we were trying to induce [the other directors]. It's like playing poker. We put our chips up on the table, everything we had."232

The play worked—on December 10, the Airgas board (minus McCausland) held a telephonic meeting. The nine independent directors unanimously agreed to retain Credit Suisse as a third independent financial advisor to represent the full board.233 The three new directors were satisfied with the choice of Credit Suisse,234 and Air Products' own representatives harbored no reason to doubt Credit Suisse's qualifications or independence.235 In addition, the Air Products Nominees retained their own independent counsel—Skadden, Arps, Slate, Meagher & Flom, LLP—and the board agreed to reimburse the reasonable costs of Skadden's past work for the new directors and to pay Skadden's fees going forward.236

Moreover, the Air Products Nominees publicly disavowed any real disagreement that may have allegedly existed on the board before the November 2, 2010 letter to Air Products. The December 7 and December 8 letters were made publicly available on December 13, 2010, along with a statement by the three new directors:

In any event, as will be explained in greater detail below, by December 21, 2010 the new Air Products Nominees seem to have changed their tune and fully support the view that Airgas is worth at least $78 in a sale transaction.238

R. The $70 "Best and Final" Offer

Meanwhile, over at Air Products, the board was considering its position with respect to its outstanding tender offer, and on December 9, 2010, the board met to discuss its options.239 Specifically, question 1 in the Court's December 2 Letter asked: "Is $65.50 per share the price that Air Products wants this Court to rely upon in addressing the `threat' analysis under Unocal?" The Court also recognized that Air Products had made clear that $65.50 was not its best offer—it was a "floor" from which Air Products was willing to negotiate higher.240

After reviewing recent events with the board (including the Supreme Court's reversal on the bylaw issue) and noting the looming December 10 response deadline to my December 2 letter, Huck explained Air Products' options at that point:

Huck walked the board through each of the three alternatives, noting that the first would effectively eliminate any possibility of a transaction, and the second was "as a practical matter impossible" (and could take several months as well).242 As for the third, Huck said that "while most of the record [in this case] was fully developed, increasing the offer to the Company's best and final price could strengthen the case for removal of the poison pill."243 Accordingly, on December 9, 2010—the day before the parties filed their Supplemental Post-Trial Briefs in response to the Court's December 2 Letter—Air Products made its "best and final" offer for Airgas, raising its offer price to $70 per share.244

In its filing and related press release, Air Products said:

The Airgas board, in initially considering the $70 offer, did not really believe that $70 was actually Air Products' "best and final" offer, despite Air Products' public statements saying as much.246 Accordingly, in the post-trial discovery window before the supplementary evidentiary hearing, defendants tried to take discovery into Air Products' internal valuations and analyses of Airgas to determine whether Air Products might in fact be willing to pay higher than $70 per share. Relying on business strategy privilege, Air Products refused to produce its internal analyses.247 In light of that, defendants filed a motion in limine several days before the supplementary evidentiary hearing began to preclude Air Products from offering testimony or documentary evidence in support of its assertion that $70 is its "best and final" offer. In denying that request, I held:

Air Products has repeatedly represented, both in publicly available press releases, public filings with the SEC, and submissions to this Court, that $70 per share is its "best and final" offer.249 The testimony offered by representatives of Air Products at the supplementary evidentiary hearing regarding the $70 offer provides further evidence to this Court that Air Products' offer is now, as far as this Court is concerned, at its end stage.250

When asked what Air Products meant by "best and final," McGlade responded, "$70 is the maximum number that we're prepared to pay."251 Huck concurred: "It is the best and final price which we're willing to offer in this deal"252 and "[t]here is no other offer to come."253 McGlade further explained:

In response to questioning by defendants' counsel as to why, at the December 9 meeting, there was no discussion as to specifically what the words "best and final" meant, Huck responded, "Right. I trust our board can understand words."255 The message had resonated. In Davis's words, it was "made clear" at the December 9 meeting that $70 was Air Products' best and final offer for Airgas.256 All of the Air Products board members were equally supportive of the decision to make the best and final offer.257

Huck testified that the board's decision to make its best and final offer was based on a cash flow analysis along with the board's judgment of the risks and rewards with respect to this deal.258 Whether or not Air Products has the financial ability to pay more is not what the board based its "best and final" price on—nor does it have to be.

In fact, Airgas itself has argued in this litigation that "Air Products' own internal DCF analysis is not relevant to evaluating the reasonableness of the Airgas Board's determination. Rather, the appropriate focus should be on the analyses and opinions of Airgas' financial advisors."259 I agree. Thus, for purposes of my analysis and the context of this litigation, based on the representations made in public filings and under oath to this Court, I treat $70, as a matter of fact, as Air Products' "best and final" offer.

S. The Airgas Board Unanimously Rejects the $70 Offer

As noted above, the Airgas board met on December 10, 2010 to discuss the Air Products Nominees' request for independent legal advisors and a third outside financial advisor. The board did not discuss or make a determination with respect to Air Products' revised $70 offer at the December 10 meeting.

On December 21, the Airgas board met to consider Air Products' "best and final" offer.260 Management kicked off the meeting by presenting an updated five-year plan to the board. McCausland gave an overview of the refreshed plan, and then McLaughlin addressed key financial highlights.261 Molinini and Graff discussed other aspects of the company's growth.262 This was followed by presentations by the three financial advisors.263 Carr went first, then Rensky. Both Bank of America Merrill Lynch and Goldman Sachs "were of the opinion that the Air Products' $70 offer was inadequate from a financial point of view."264

Then they turned the floor over to David DeNunzio of Credit Suisse, Airgas's newly-retained third independent financial advisor. DeNunzio explained how Credit Suisse had performed its analysis, and how its analysis differed from that of Goldman Sachs and Bank of America Merrill Lynch. He observed that "Airgas's SAP plan is the most detailed plan he and his team had come across in 25-30 years."265 In summary, DeNunzio said that Air Products' offer "was only slightly above what [Airgas] should trade at, was below most selected transactions and was well below the value of the Company on the basis of a DCF analysis, which was the analysis to which Credit Suisse gave the most weight."266 In the end, Credit Suisse "easily concluded that the $70 offer was inadequate from a financial point of view."267

After considering Airgas's updated five-year plan and the inadequacy opinions of all three of the company's financial advisors, the Airgas board unanimously—including the Air Products Nominees—rejected the $70 offer.268 Interestingly, the Air Products Nominees were some of the most vocal opponents to the $70 offer. After the bank presentations, John Clancey, one of the three Air Products Nominees concluded that "the offer was not adequate,"269 and that even "an increase to an amount which was well below a $78 per share price was not going to `move the needle.'"270 He said to the rest of the board, "We have to protect the pill."271 When asked what he meant by that comment, Clancey testified:

This was Air Products' own nominee saying this. The other two Air Products Nominees—Lumpkins and Miller—have expressed similar views on what Airgas would be worth in a sale transaction.272 So what changed their minds? Why do they now all believe that the $70 offer is so inadequate? In McCausland's words:

McCausland testified that he and the rest of the board are "[a]bsolutely not" opposed to a sale of Airgas—but they are opposed to $70 because it is an inadequate bid.274

The next day, December 22, 2010, Airgas filed another amendment to its 14D-9, announcing the board's unanimous rejection of Air Products' $70 offer as "clearly inadequate" and recommending that Airgas stockholders not tender their shares.275 The board reiterated once more that the value of Airgas in a sale is at least $78 per share.276 In this filing, Airgas listed numerous reasons for its recommendation, in two pages of easy-to-read bullet points.277 These reasons included the Airgas board's knowledge and experience in the industry; the board's knowledge of Airgas's financial condition and strategic plans, including current trends in the business and the expected future benefits of SAP and returns on other substantial capital investments that have yet to be realized; Airgas's historical trading prices and strong position in the industry; the potential benefits of the transaction for Air Products, including synergies and accretion; the board's consideration of views expressed by various stockholders; and the inadequacy opinions of its financial advisors.278 All three of the outside financial advisors' written inadequacy opinions were attached to the filing.279

Once again, the evidence presented at the supplemental evidentiary hearing was that the Airgas stockholders are a sophisticated group,280 and that they had an extraordinary amount of information available to them with which to make an informed decision about Air Products' offer. Although a few of the directors expressed the view that they understood the potential benefits of SAP and the details of the five-year plan better than stockholders could, the material information underlying management's assumptions has been released to stockholders through SEC filings and is reflected in public analysts' reports as well.281 Airgas has issued four earnings releases since the time Air Products first announced its tender offer in February 2010.282 McCausland has appeared in print, on the radio, and on television, and has met with numerous stockholders individually283 to tell them that Air Products' offer is inadequate:

The testimony of other Airgas directors and financial advisors provides further support. John van Roden could not think of any other information he believed Airgas could provide to its stockholders to convince them as to the accuracy of the board's view on value that the stockholders don't already know.285 Miller could not think of any facts about Airgas's business strategy or Air Products' offer that would make Airgas's stockholders incapable of properly making an economic judgment about the tender offer.286 When I asked David DeNunzio, Airgas's financial advisor from Credit Suisse, what more an Airgas stockholder needs to know than they already do know in order to make an informed judgment about accepting an offer at $70 or some other price, he responded "I think you have to conclude that this shareholder base is quite well-informed."287

In addition, numerous independent analysts' reports on Airgas are publicly available (and the numbers are very similar to Airgas's projections). Stockholders can read those reports; they can read the testimony presented during the October trial and the January supplementary hearing. They can read DeNunzio's testimony that in his professional opinion, the fair value of Airgas is in the "mid to high seventies, and well into the mid eighties."288 They can read Robert Lumpkins' opinion (one of the Air Products Nominees) that Airgas, "on its own, its own business will be worth $78 or more in the not very distant future because of its own earnings and cash flow prospects ... as a standalone company."289 They can read the three inadequacy opinions of the independent financial advisors. In short, "[a]ll the information they could ever want is available."290

II. STANDARD OF REVIEW

A. The Unocal Standard

Because of the "omnipresent specter" of entrenchment in takeover situations, it is well-settled that when a poison pill is being maintained as a defensive measure and a board is faced with a request to redeem the rights, the Unocal standard of enhanced judicial scrutiny applies.291 Under that legal framework, to justify its defensive measures, the target board must show (1) that it had "reasonable grounds for believing a danger to corporate policy and effectiveness existed" (i.e., the board must articulate a legally cognizable threat) and (2) that any board action taken in response to that threat is "reasonable in relation to the threat posed."292

The first hurdle under Unocal is essentially a process-based review: "Directors satisfy the first part of the Unocal test by demonstrating good faith and reasonable investigation."293 Proof of good faith and reasonable investigation is "materially enhanced, as here, by the approval of a board comprised of a majority of outside independent directors."294

But the inquiry does not end there; process alone is not sufficient to satisfy the first part of Unocal review— "under Unocal and Unitrin the defendants have the burden of showing the reasonableness of their investigation, the reasonableness of their process and also of the result that they reached."295 That is, the "process" has to lead to the finding of a threat. Put differently, no matter how exemplary the board's process, or how independent the board, or how reasonable its investigation, to meet their burden under the first prong of Unocal defendants must actually articulate some legitimate threat to corporate policy and effectiveness.296

Once the board has reasonably perceived a legitimate threat, Unocal prong 2 engages the Court in a substantive review of the board's defensive actions: Is the board's action taken in response to that threat proportional to the threat posed?297 In other words, "[b]ecause of the omnipresent specter that directors could use a rights plan improperly, even when acting subjectively in good faith, Unocal and its progeny require that this Court also review the use of a rights plan objectively."298 This proportionality review asks first whether the board's actions were "draconian, by being either preclusive or coercive."299 If the board's response was not draconian, the Court must then determine whether it fell "within a range of reasonable responses to the threat" posed.300

B. Unocal—Not the Business Judgment Rule—Applies Here

Defendants argue that "Unocal does not apply in a situation where the bidder's nominees agree with the incumbent directors after receiving advice from a new investment banker."301 This, they say, is because the "sole justification for Unocal's enhanced standard of review is the `omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders,'"302 and that in "the absence of this specter, a board's `obligation to determine whether [a takeover] offer is in the best interests of the corporation and its shareholders ... is no different from any other responsibility it shoulders, and its decisions should be no less entitled to the respect they otherwise would be accorded in the realm of business judgment.'"303 Thus, they argue, because Airgas has presented overwhelming evidence that the directors—particularly now including the three new Air Products Nominees—are independent and have acted in good faith, the "theoretical specter of disloyalty does not exist" and therefore "Unocal's heightened standard of review does not apply here."304

That is simply an incorrect statement of the law. What the Supreme Court actually said in Unocal, without taking snippets of quotes out of context, was the following:

Because the Airgas board is taking defensive action in response to a pending takeover bid, the "theoretical specter of disloyalty" does exist— indeed, it is the very reason the Delaware Supreme Court in Unocal created an intermediate standard of review applying enhanced scrutiny to board action before directors would be entitled to the protections of the business judgment rule. In articulating this intermediate standard, the Supreme Court in Unocal continued:

The idea that boards may be acting in their own self-interest to perpetuate themselves in office is, in and of itself, the "omnipresent specter" justifying enhanced judicial scrutiny. There is "no doubt that the basis for the omnipresent specter is the interest of incumbent directors, both insiders and outsiders, in retaining the `powers and perquisites' of board membership."307 To pass muster under this enhanced scrutiny, those directors bear the burden of proving that they were acting in good faith and have articulated a legally cognizable threat and that their actions were reasonable in response to that perceived threat—not simply that they were independent and acting in good faith.308 To wit:

Accordingly, defendants are wrong. The Unocal standard of enhanced judicial scrutiny—not the business judgment rule—is the standard of review that applies to a board's defensive actions taken in response to a hostile takeover. This is how Delaware has always interpreted the Unocal standard. There has never been any doubt about this, and as recently as four months ago the Delaware Supreme Court reaffirmed this understanding in Selectica.310

C. A Brief Poison Pill Primer—Moran and its Progeny

This case unavoidably highlights what former-Chancellor Allen has called "an anomaly" in our corporation law.311 The anomaly is that "[p]ublic tender offers are, or rather can be, change in control transactions that are functionally similar to merger transactions with respect to the critical question of control over the corporate enterprise."312 Both tender offers and mergers are "extraordinary" transactions that "threaten[] equivalent impacts upon the corporation and all of its constituencies including existing shareholders."313 But our corporation law statutorily views the two differently—under DGCL § 251, board approval and recommendation is required before stockholders have the opportunity to vote on or even consider a merger proposal, while traditionally the board has been given no statutory role in responding to a public tender offer.314 The poison pill was born "as an attempt to address the flaw (as some would see it) in the corporation law" giving boards a critical role to play in the merger context but no role to play in tender offers.315

These "functionally similar forms of change in control transactions," however, have received disparate legal treatment— on the one hand, a decision not to pursue a merger proposal (or even a decision not to engage in negotiations at all) is reviewed under the deferential business judgment standard, while on the other hand, a decision not to redeem a poison pill in the face of a hostile tender offer is reviewed under "intermediate scrutiny" and must be "reasonable in relation to the threat posed" by such offer.316

In Moran v. Household International, Inc., written shortly after the Unocal decision in 1985, the Delaware Supreme Court first upheld the legality of the poison pill as a valid takeover defense.317 Specifically, in Moran, the Household board of directors "react[ed] to what it perceived to be the threat in the market place of coercive two-tier tender offers" by adopting a stockholder rights plan that would allow the corporation to protect stockholders by issuing securities as a way to ward off a hostile bidder presenting a structurally coercive offer.318 The Moran Court held that the adoption of such a rights plan was within the board's statutory authority and thus was not per se illegal under Delaware law. But the Supreme Court cabined the use of the rights plan as follows:

The Court went on to say that "[t]he Board does not now have unfettered discretion in refusing to redeem the Rights. The Board has no more discretion in refusing to redeem the Rights than it does in enacting any defensive mechanism."320 Accordingly, while the Household board's adoption of the rights plan was deemed to be made in good faith, and the plan was found to be reasonable in relation to the threat posed by the "coercive acquisition techniques" that were prevalent at the time, the pill at that point was adopted merely as a preventive mechanism to ward off future advances. The "ultimate response to an actual takeover," though, would have to be judged by the directors' actions taken at that time, and the board's "use of the Plan [would] be evaluated when and if the issue [arose]."321

Notably, the pill in Moran was considered reasonable in part because the Court found that there were many methods by which potential acquirors could get around the pill.322 One way around the pill was the "proxy out"—bidders could solicit consents to remove the board and redeem the rights. In fact, the Court did "not view the Rights Plan as much of an impediment on the tender offer process" at all.323 After all, the board in Moran was not classified, and so the entire board was up for reelection annually324— meaning that all of the directors could be replaced in one fell swoop and the acquiror could presumably remove any impediments to its tender offer fairly easily after that.

So, the Supreme Court made clear in Moran that "coercive acquisition techniques" (i.e. the well-known two-tiered front-end-loaded hostile tender offers of the 1980s) were a legally cognizable "threat," and the adoption of a poison pill was a reasonable defensive measure taken in response to that threat. At the time Moran was decided, though, the intermediate standard of review was still new and developing, and it remained to be seen "what [other] `threats' from hostile bidders, apart from unequal treatment for non-tendering shareholders, [would be] sufficiently grave to justify preclusive defensive tactics without offering any transactional alternative at all."325

Two scholars at the time penned an article suggesting that there were three types of threats that could be recognized under Unocal: (1) structural coercion— "the risk that disparate treatment of non-tendering shareholders might distort shareholders' tender decisions"326 (i.e., the situation involving a two-tiered offer where the back end gets less than the front end); (2) opportunity loss—the "dilemma that a hostile offer might deprive target shareholders of the opportunity to select a superior alternative offered by target management;"327 and (3) substantive coercion— "the risk that shareholders will mistakenly accept an underpriced offer because they disbelieve management's representations of intrinsic value."328

Recognizing that substantive coercion was a "slippery concept" that had the potential to be abused or misunderstood, the professors explained:

Gilson & Kraakman believed that, if used correctly, an effective proportionality test could properly incentivize management, protect stockholders and ultimately increase value for stockholders in the event that management does resist a hostile bid—but only if a real "threat" existed. To demonstrate the existence of such a threat, management must show (in detail) how its plan is better than the alternative (the hostile deal) for the target's stockholders. Only then, if management met that burden, could it use a pill to block a "substantively coercive," but otherwise non-coercive bid.

The test proposed by the professors was taken up, and was more or less adopted, by then-Chancellor Allen in City Capital Associates v. Interco.330 There, the board of Interco had refused to redeem a pill that was in place as a defense against an unsolicited tender offer to purchase all of Interco's shares for $74 per share. The bid was non-coercive (structurally), because the offer was for $74 both on the front and back end, if accepted. As an alternative to the offer, the board of Interco sought to effect a restructuring that it claimed would be worth at least $76 per share.

After pointing out that every case in which the Delaware Supreme Court had, to that point, addressed a defensive corporate measure under Unocal involved a structurally coercive offer (i.e. a threat to voluntariness), the Chancellor recognized that "[e]ven where an offer is noncoercive, it may represent a `threat' to shareholder interests" because a board with the power to refuse the proposal and negotiate actively may be able to obtain higher value from the bidder, or present an alternative transaction of higher value to stockholders.331 Although he declined to apply the term "substantive coercion" to the threat potentially posed by an "inadequate" but non-coercive offer, Chancellor Allen clearly addressed the concept. Consciously eschewing use of the Orwellian term "substantive coercion,"332 the Chancellor determined that, based on the facts presented to him, there was no threat of stockholder "coercion"—instead, the threat was to stockholders' economic interests posed by a "non-coercive" offer that the board deemed to be "inadequate."333 As Gilson & Kraakman had suggested, the Chancellor then held that, assuming the board's determination was made in good faith, such a determination could justify leaving a poison pill in place for some period of time while the board protects stockholder interests (either by negotiating with the bidder, or looking for a white knight, or designing an alternative to the offer). But "[o]nce that period has closed ... and [the board] has taken such time as it required in good faith to arrange an alternative value-maximizing transaction, then, in most instances, the legitimate role of the poison pill in the context of a noncoercive offer will have been fully satisfied."334 The only remaining function for the pill at that point, he concluded, is to preclude a majority of the stockholders from making their own determination about whether they want to tender.

The Chancellor held that the "mild threat" posed by the tender offer (a difference of approximately $2 per share, when the tender offer was for all cash and the value of management's alternative was less certain) did not justify the board's decision to keep the pill in place, effectively precluding stockholders from exercising their own judgment—despite the board's good faith belief that the offer was inadequate and keeping the pill in place was in the best interests of stockholders.

In Paramount Communications, Inc. v. Time, Inc., however, the Delaware Supreme Court explicitly rejected an approach to Unocal analysis that "would involve the court in substituting its judgment as to what is a `better' deal for that of a corporation's board of directors."335 Although not a "pill case," the Supreme Court in Paramount addressed the concept of substantive coercion head on in determining whether an all-cash, all-shares tender offer posed a legally cognizable threat to the target's stockholders.

As the Supreme Court put it, the case presented them with the following question: "Did Time's board, having developed a [long-term] strategic plan ... come under a fiduciary duty to jettison its plan and put the corporation's future in the hands of its stockholders?"336 Key to the Supreme Court's ruling was the underlying pivotal question in their mind regarding the Time board's specific long-term plan—its proposed merger with Warner—and whether by entering into the proposed merger, Time had essentially "put itself up for sale."337 This was important because, so long as the company is not "for sale," then Revlon duties do not kick in and the board "is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover."338 The Supreme Court held that the Time board had not abandoned its long-term strategic plans; thus Revlon duties were not triggered and Unocal alone applied to the board's actions.339

In evaluating the Time board's actions under Unocal, the Supreme Court embraced the concept of substantive coercion, agreeing with the Time board that its stockholders might have tendered into Paramount's offer "in ignorance or a mistaken belief of the strategic benefit which a business combination with Warner might produce."340 Stating in no uncertain terms that "in our view, precepts underlying the business judgment rule militate against a court's engaging in the process of attempting to appraise and evaluate the relative merits of a long-term versus a short-term investment goal for shareholders"341 (as to do so would be "a distortion of the Unocal process"), the Supreme Court held that Time's response was proportionate to the threat of Paramount's offer. Time's defensive actions were not aimed at "cramming down" a management-sponsored alternative to Paramount's offer, but instead, were simply aimed at furthering a pre-existing long-term corporate strategy.342 This, held the Supreme Court, comported with the board's valid exercise of its fiduciary duties under Unocal.

Five years later, the Supreme Court further applied the "substantive coercion" concept in Unitrin, Inc. v. American General Corp.343 There, a hostile acquirer (American General) wanted Unitrin (the target corporation) to be enjoined from implementing a stock repurchase and poison pill adopted in response to American General's "inadequate" all-cash offer. Recognizing that previous cases had held that "inadequate value" of an all-cash offer could be a valid threat (i.e. Interco), the Court also reiterated its conclusion in Paramount that inadequate value is not the only threat posed by a non-coercive, all-cash offer. The Unitrin Court recited that "the Time board of directors had reasonably determined that inadequate value was not the only threat that Paramount's all cash for all shares offer presented, but was also reasonably concerned that the Time stockholders might tender to Paramount in ignorance or based upon a mistaken belief, i.e., yield to substantive coercion."344

Relying on that line of reasoning, the Unitrin Court determined that the Unitrin board "reasonably perceived risk of substantive coercion, i.e., that Unitrin's shareholders might accept American General's inadequate Offer because of `ignorance or mistaken belief' regarding the Board's assessment of the long-term value of Unitrin's stock."345 Thus, perceiving a valid threat under Unocal, the Supreme Court then addressed whether the board of Unitrin's response was proportional to the threat.

Having determined that the Unitrin board reasonably perceived the American General offer to be inadequate, and Unitrin's poison pill adoption to be a proportionate response, the Court of Chancery had found that the Unitrin board's decision to authorize its stock repurchase program was disproportionate because it was "unnecessary" to protect the Unitrin stockholders from an inadequate bid since the board already had a pill in place. The Court of Chancery here was sensitive to how the stock buy back would make it extremely unlikely that American General could win a proxy contest. The Supreme Court, however, held that the Court of Chancery had "erred by substituting its judgment, that the Repurchase Program was unnecessary, for that of the board,"346 and that such action, if not coercive or preclusive, could be valid if it fell within a range of reasonableness.

At least one of the professors, it seems, is unhappy with how the Supreme Court has apparently misunderstood the concept of substantive coercion as he had envisioned it, noting that "only the phrase and not the substance captured the attention of the Delaware Supreme Court" such that the "mere incantation" of substantive coercion now seems sufficient to establish a threat justifying a board's defensive strategy.347

More recent cases decided by the Court of Chancery have attempted to cut back on the now-broadened concept of "substantive coercion." The concept, after all, was originally (as outlined by Professors Gilson & Kraakman) intended to be a very carefully monitored "threat" requiring close judicial scrutiny of any defensive measures taken in response to such a threat. In Chesapeake v. Shore, Vice Chancellor Strine stated:

Once the stockholders have access to such information, the potential for stockholder "confusion" seems substantially lessened. At that point, "[o]ur law should [] hesitate to ascribe rube-like qualities to stockholders. If the stockholders are presumed competent to buy stock in the first place, why are they not presumed competent to decide when to sell in a tender offer after an adequate time for deliberation has been afforded them?"349

That is essentially how former-Chancellor Allen first attempted to apply the concept of substantive coercion in Interco. Chancellor Allen found it "significant" that the question of the board's responsibility to redeem or not to redeem the poison pill in Interco arose at the "end-stage" of the takeover contest.350 He explained:

Similarly, here, the takeover battle between Air Products and Airgas seems to have reached an "end stage."352 Air Products has made its "best and final" offer. Airgas deems that offer to be inadequate. And we're not "talking nickels and quarters here"353—an $8 gulf separates the two. The Airgas stockholders know all of this. At this stage, the pill is serving the principal purpose of precluding the shareholders from tendering into Air Products' offer. As noted above, however, the Supreme Court rejected the reasoning of Interco in Paramount. Thus, while I agree theoretically with former-Chancellor Allen's and Vice Chancellor Strine's conception of substantive coercion and its appropriate application, the Supreme Court's dictum in Paramount (which explicitly disapproves of Interco) suggests that, unless and until the Supreme Court rules otherwise, that is not the current state of our law.

D. A Note on TW Services

TW Services, Inc. v. SWT Acquisition Corp.354 is an often overlooked case that is, in my view, an illuminating piece in this takeover puzzle. The case was another former-Chancellor Allen decision, decided just after Interco and Pillsbury, and right before Paramount. Indeed, it appears to be cited approvingly in Paramount in the same sentence where "Interco and its progeny" were rejected as not in keeping with proper Unocal analysis.355 In other words, according to the Supreme Court, in TW Services (as opposed to Interco), Chancellor Allen did not substitute his "judgment as to what is a `better' deal for that of a corporation's board of directors."356 But it is important to look at why this was so.

As noted above, TW Services essentially teed up the very question I am addressing in this Opinion, but then declined to answer it in light of the particular facts of that case. Specifically, Chancellor Allen raised front and center the question when, if ever, must a board abandon its long-run strategy in the face of a hostile tender offer. He declined to answer it because he decided the case on other grounds and did not ultimately need to reach the question.357 In doing so, however, he provided insightful commentary on two key points: (1) a board's differing duties when under the Revlon versus Unocal standards of review,358 and (2) Interco and its progeny.

First, as the Supreme Court later did in Paramount, Chancellor Allen grappled with the following "critical question[:] when is a corporation in a Revlon [Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173 (1986)] mode?"359 It is not until the board is under Revlon that its duty "narrow[s]" to getting the best price reasonably available for stockholders in a sale of the company.360 The reason the board's duty shifts at that point to maximizing shareholder value is simple: "In such a setting, for the present shareholders, there is no long run."361 This is not so when the board is under Unocal, the company is not for sale, and the board is instead pursuing long run corporate interests. Accordingly, the Chancellor asked,

Chancellor Allen does not directly answer the question. Instead, he continues with another follow-up question: Does a director's duty of loyalty to "the corporation and its shareholders" require a board—in light of the fact that a majority of shares may wish to tender into a current share value maximizing transaction now—to enter into Revlon mode? Again, he leaves the answer for another day and another case. But the most famous quote from TW Services was embedded in a footnote following that last question. Namely, in considering whether the duty of loyalty could force a board into Revlon mode, the Chancellor mused:

Second, Chancellor Allen shed light on two then-recent cases where the Court of Chancery had attempted to order redemption of a poison pill. He noted that the boards in those cases (i.e., Pillsbury364 and Interco365) had "elected to pursue a defensive restructuring that in form and effect was (so far as the corporation itself was concerned) a close approximation of and an alternative to a pending all cash tender offer for all shares."366 In other words, in Pillsbury and Interco, the boards were responding to a hostile offer by proposing "a management endorsed breakup transaction that, realistically viewed, constituted a functional alternative to the resisted sale."367 Importantly, "[t]hose cases did not involve circumstances in which a board had in good faith ... elected to continue managing the enterprise in a long term mode and not to actively consider an extraordinary transaction of any type."368 The issue presented by a board that responds to a tender offer with a major restructuring or recapitalization is fundamentally different than that posed by a board which "just says no" and maintains the status quo.

Thus, it seemed, the Chancellor endorsed the view that so long as a corporation is not for sale, it is not in Revlon mode and is free to pursue its long run goals. In essence, TW Services appeared to support the view that a well-informed board acting in good faith in response to a reasonably perceived threat may, in fact, be able to "just say no" to a hostile tender offer.

The foregoing legal framework describes what I believe to be the current legal regime in Delaware. With that legal superstructure in mind, I now apply the Unocal standard to the specific facts of this case.

III. ANALYSIS

A. Has the Airgas Board Established That It Reasonably Perceived the Existence of a Legally Cognizable Threat?

1. Process

Under the first prong of Unocal, defendants bear the burden of showing that the Airgas board, "after a reasonable investigation ... determined in good faith, that the [Air Products offer] presented a threat ... that warranted a defensive response."369 I focus my analysis on the defendants' actions in response to Air Products' current $70 offer, but I note here that defendants would have cleared the Unocal hurdles with greater ease when the relevant inquiry was with respect to the board's response to the $65.50 offer.370

In examining defendants' actions under this first prong of Unocal, "the presence of a majority of outside independent directors coupled with a showing of reliance on advice by legal and financial advisors, `constitute[s] a prima facie showing of good faith and reasonable investigation.'"371 Here, it is undeniable that the Airgas board meets this test.

First, it is currently comprised of a majority of outside independent directors— including the three recently-elected insurgent directors who were nominated to the board by Air Products. Air Products does not dispute the independence of the Air Products Nominees,372 and the evidence at trial showed that the rest of the Airgas board, other than McCausland, are outside, independent directors who are not dominated by McCausland.373

Second, the Airgas board relied on not one, not two, but three outside independent financial advisors in reaching its conclusion that Air Products' offer is "clearly inadequate."374 Credit Suisse, the third outside financial advisor—as described in Section I.Q.2—was selected by the entire Airgas board, was approved by the three Air Products Nominees, and its independence and qualifications are not in dispute.375 In addition, the Airgas board has relied on the advice of legal counsel,376 and the three Air Products Nominees have retained their own additional independent legal counsel (Skadden, Arps). In short, the Airgas board's process easily passes the smell test.

2. What is the "Threat?"

Although the Airgas board meets the threshold of showing good faith and reasonable investigation, the first part of Unocal review requires more than that; it requires the board to show that its good faith and reasonable investigation ultimately gave the board "grounds for concluding that a threat to the corporate enterprise existed."377 In the supplemental evidentiary hearing, Airgas (and its lawyers) attempted to identify numerous threats posed by Air Products' $70 offer: It is coercive. It is opportunistically timed.378 It presents the stockholders with a "prisoner's dilemma." It undervalues Airgas—it is a "clearly inadequate" price. The merger arbitrageurs who have bought into Airgas need to be "protected from themselves."379 The arbs are a "threat" to the minority.380 The list goes on.

The reality is that the Airgas board discussed essentially none of these alleged "threats" in its board meetings, or in its deliberations on whether to accept or reject Air Products' $70 offer, or in its consideration of whether to keep the pill in place. The board did not discuss "coercion" or the idea that Airgas's stockholders would be "coerced" into tendering.381 The board did not discuss the concept of a "prisoner's dilemma."382 The board did not discuss Air Products' offer in terms of any "danger" that it posed to the corporate enterprise.383 In the October trial, Airgas had likewise failed to identify threats other than that Air Products' offer undervalues Airgas.384 In fact, there has been no specific board discussion since the October trial over whether to keep the poison pill in place (other than Clancey's "protect the pill" line).385

Airgas's board members testified that the concepts of coercion, threat, and the decision whether or not to redeem the pill were nonetheless "implicit" in the board's discussions due to their knowledge that a large percentage of Airgas's stock is held by merger arbitrageurs who have short-term interests and would be willing to tender into an inadequate offer.386 But the only threat that the board discussed—the threat that has been the central issue since the beginning of this case—is the inadequate price of Air Products' offer. Thus, inadequate price, coupled with the fact that a majority of Airgas's stock is held by merger arbitrageurs who might be willing to tender into such an inadequate offer, is the only real "threat" alleged. In fact, Airgas directors have admitted as much. Airgas's CEO van Roden testified:

In the end, it really is "All About Value."388 Airgas's directors and Airgas's financial advisors concede that the Airgas stockholder base is sophisticated and well-informed, and that they have all the information necessary to decide whether to tender into Air Products' offer.389

a. Structural Coercion

Air Products' offer is not structurally coercive. A structurally coercive offer involves "the risk that disparate treatment of non-tendering shareholders might distort shareholders' tender decisions."390 Unocal, for example, "involved a two-tier, highly coercive tender offer" where stock-holders who did not tender into the offer risked getting stuck with junk bonds on the back end.391 "In such a case, the threat is obvious: shareholders may be compelled to tender to avoid being treated adversely in the second stage of the transaction."392

Air Products' offer poses no such structural threat. It is for all shares of Airgas, with consideration to be paid in all cash.393 The offer is backed by secured financing.394 There is regulatory approval.395 The front end will get the same consideration as the back end, in the same currency, as quickly as practicable. Air Products is committed to promptly paying $70 in cash for each and every share of Airgas and has no interest in owning less than 100% of Airgas.396 Air Products would seek to acquire any non-tendering shares "[a]s quick[ly] as the law would allow."397 It is willing to commit to a subsequent offering period.398 In light of that, any stockholders who believe that the $70 offer is inadequate simply would not tender into the offer—they would risk nothing by not tendering because if a majority of Airgas shares did tender, any non-tendering shares could tender into the subsequent offering period and receive the exact same consideration ($70 per share in cash) as the front end.399 In short, if there were an antonym in the dictionary for "structural coercion," Air Products' offer might be it.

As former-Vice Chancellor, now Justice Berger noted, "[c]ertainly an inadequate [structurally] coercive tender offer threatens injury to the stockholders ... [but i]t is difficult to understand how, as a general matter, an inadequate all cash, all shares tender offer, with a back end commitment at the same price in cash, can be considered a continuing threat under Unocal."400 I agree. As noted above, though, the Supreme Court has recognized other "threats" that can be posed by an inadequately priced offer. One such potential continuing threat has been termed "opportunity loss," which appears to be a time-based threat.

b. Opportunity Loss

Opportunity loss is the threat that a "hostile offer might deprive target stockholders of the opportunity to select a superior alternative offered by target management or ... offered by another bidder."401 As then-Vice Chancellor Berger (who was also one of the Justices in Unitrin) explained in Shamrock Holdings:

As such, Air Products' offer poses no threat of opportunity loss. The Airgas board has had, at this point, over sixteen months to consider Air Products' offer and to explore "strategic alternatives going forward as a company."403 After all that time, there is no alternative offer currently on the table, and counsel for defendants represented during the October trial that "we're not asserting that we need more time to explore a specific alternative."404 The "superior alternative" Airgas is pursuing is simply to "continue[] on its current course and execute[] its strategic [five year, long term] plan."405

c. Substantive Coercion

Inadequate price and the concept of substantive coercion are inextricably related. The Delaware Supreme Court has defined substantive coercion, as discussed in Section II.C, as "the risk that [Airgas's] stockholders might accept [Air Products'] inadequate Offer because of `ignorance or mistaken belief' regarding the Board's assessment of the long-term value of [Airgas's] stock."406 In other words, if management advises stockholders, in good faith, that it believes Air Products' hostile offer is inadequate because in its view the future earnings potential of the company is greater than the price offered, Airgas's stockholders might nevertheless reject the board's advice and tender.

In the article that gave rise to the concept of "substantive coercion," Professors Gilson and Kraakman argued that, in order for substantive coercion to exist, two elements are necessary: (1) management must actually expect the value of the company to be greater than the offer—and be correct that the offer is in fact inadequate, and (2) the stockholders must reject management's advice or "believe that management will not deliver on its promise."407 Both elements must be present because "[w]ithout the first element, shareholders who accept a structurally non-coercive offer have not made a mistake. Without the second element, shareholders will believe management and reject underpriced offers."408

Defendants' argument involves a slightly different take on this threat, based on the particular composition of Airgas's stockholders (namely, its large "short-term" base). In essence, Airgas's argument is that "the substantial ownership of Airgas stock by these short-term, deal-driven investors poses a threat to the company and its shareholders"—the threat that, because it is likely that the arbs would support the $70 offer, "shareholders will be coerced into tendering into an inadequate offer."409 The threat of "arbs" is a new facet of substantive coercion, different from the substantive coercion claim recognized in Paramount.410 There, the hostile tender offer was purposely timed to confuse the stockholders. The terms of the offer could cause stockholders to mistakenly tender if they did not believe or understand (literally) the value of the merger with Warner as compared with the value of Paramount's cash offer. The terms of the offer introduced uncertainty. In contrast, here, defendants' claim is not about "confusion" or "mistakenly tendering" (or even "disbelieving" management)—Air Products' offer has been on the table for over a year, Airgas's stockholders have been barraged with information, and there is no alternative offer to choose that might cause stockholders to be confused about the terms of Air Products' offer. Rather, Airgas's claim is that it needs to maintain its defensive measures to prevent control from being surrendered for an unfair or inadequate price. The argument is premised on the fact that a large percentage (almost half) of Airgas's stockholders are merger arbitrageurs—many of whom bought into the stock when Air Products first announced its interest in acquiring Airgas, at a time when the stock was trading much lower than it is today—who would be willing to tender into an inadequate offer because they stand to make a significant return on their investment even if the offer grossly undervalues Airgas in a sale. "They don't care a thing about the fundamental value of Airgas."411 In short, the risk is that a majority of Airgas's stockholders will tender into Air Products' offer despite its inadequate price tag, leaving the minority "coerced" into taking $70 as well.412 The defendants do not appear to have come to grips with the fact that the arbs bought their shares from long-term stockholders who viewed the increased market price generated by Air Products' offer as a good time to sell.413

The threat that merger arbs will tender into an inadequately priced offer is only a legitimate threat if the offer is indeed inadequate.414 "The only way to protect stockholders [from a threat of substantive coercion] is for courts to ensure that the threat is real and that the board asserting the threat is not imagining or exaggerating it."415 Air Products and Shareholder Plaintiffs attack two main aspects of Airgas's five year plan—(1) the macroeconomic assumptions relied upon by management, and (2) the fact that Airgas did not consider what would happen if the economy had a "double-dip" recession.

Plaintiffs argue that reasonable stockholders may disagree with the board's optimistic macroeconomic assumptions. McCausland did not hesitate to admit during the supplemental hearing that he is "very bullish" on Airgas. "It's an amazing company," he said. He testified that the company has a shot at making its 2007 five year plan "despite the fact that the worst recession since the Great Depression landed right in the middle of that period. [W]e're in a good business, and we have a unique competitive advantage in the U.S. market."416 And it's not just Airgas that McCausland is bullish about—he's "bullish on the United States [] economy" as well.417

So management presented a single scenario in its revised five-year plan—no double dip recession; reasonably optimistic macroeconomic growth assumptions. Everyone at trial agreed that "reasonable minds can differ as to the view of future value."418 But nothing in the record supported a claim that Airgas fudged any of its numbers, nor was there evidence that the board did not act at all times in good faith and in reasonable reliance on its outside advisors.419 The Air Products Nominees found the assumptions to be "reasonable."420 They do not see "any indication of a double-dip recession."421

The next question is, if a majority of stockholders want to tender into an inadequately priced offer, is that substantive coercion? Is that a threat that justifies continued maintenance of the poison pill? Put differently, is there evidence in the record that Airgas stockholders are so "focused on the short-term" that they would "take a smaller harvest in the swelter of August over a larger one in Indian Summer"?422 Air Products argues that there is none whatsoever. They argue that there is "no evidence in the record that [Airgas's short-term] holders [i.e., arbitrageurs and hedge funds] would not [] reject the $70 offer if it was viewed by them to be inadequate.... Defendants have not demonstrated a single fact supporting their argument that a threat to Airgas stockholders exists because the Airgas stock is held by investors with varying time horizons."423

But there is at least some evidence in the record suggesting that this risk may be real.424 Moreover, both Airgas's expert and well as Air Products' own expert testified that a large number—if not all—of the arbitrageurs who bought into Airgas's stock at prices significantly below the $70 offer price would be happy to tender their shares at that price regardless of the potential long-term value of the company.425 Based on the testimony of both expert witnesses, I find sufficient evidence that a majority of stockholders might be willing to tender their shares regardless of whether the price is adequate or not—thereby ceding control of Airgas to Air Products. This is a clear "risk" under the teachings of TW Services426 and Paramount427 because it would essentially thrust Airgas into Revlon mode.

Ultimately, it all seems to come down to the Supreme Court's holdings in Paramount and Unitrin. In Unitrin, the Court held: "[T]he directors of a Delaware corporation have the prerogative to determine that the market undervalues its stock and to protect its stockholders from offers that do not reflect the long-term value of the corporation under its present management plan."428 When a company is not in Revlon mode, a board of directors "is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover."429 The Supreme Court has unequivocally "endorse[d the] conclusion that it is not a breach of faith for directors to determine that the present stock market price of shares is not representative of true value or that there may indeed be several market values for any corporation's stock."430 As noted above, based on all of the facts presented to me, I find that the Airgas board acted in good faith and relied on the advice of its financial and legal advisors in coming to the conclusion that Air Products' offer is inadequate. And as the Supreme Court has held, a board that in good faith believes that a hostile offer is inadequate may "properly employ[] a poison pill as a proportionate defensive response to protect its stockholders from a `low ball' bid."431

B. Is the Continued Maintenance of Airgas's Defensive Measures Proportionate to the "Threat" Posed by Air Products' Offer?

Turning now to the second part of the Unocal test, I must determine whether the Airgas board's defensive measures are a proportionate response to the threat posed by Air Products' offer. Where the defensive measures "are inextricably related, the principles of Unocal require that [they] be scrutinized collectively as a unitary response to the perceived threat."432 Defendants bear the burden of showing that their defenses are not preclusive or coercive, and if neither, that they fall within a "range of reasonableness."433

1. Preclusive or Coercive

A defensive measure is coercive if it is "aimed at `cramming down' on its shareholders a management-sponsored alternative."434 Airgas's defensive measures are certainly not coercive in this respect, as Airgas is specifically not trying to cram down a management sponsored alternative, but rather, simply wants to maintain the status quo and manage the company for the long term.

A response is preclusive if it "makes a bidder's ability to wage a successful proxy contest and gain control [of the target's board] ... `realistically unattainable.'"435 Air Products and Shareholder Plaintiffs argue that Airgas's defensive measures are preclusive because they render the possibility of an effective proxy contest realistically unattainable. What the argument boils down to, though, is that Airgas's defensive measures make the possibility of Air Products obtaining control of the Airgas board and removing the pill realistically unattainable in the very near future, because Airgas has a staggered board in place. Thus, the real issue posed is whether defensive measures are "preclusive" if they make gaining control of the board realistically unattainable in the short term (but still realistically attainable sometime in the future), or if "preclusive" actually means "preclusive"—i.e. forever unattainable. In reality, or perhaps I should say in practice, these two formulations ("preclusive for now" or "preclusive forever") may be one and the same when examining the combination of a staggered board plus a poison pill, because no bidder to my knowledge has ever successfully stuck around for two years and waged two successful proxy contests to gain control of a classified board in order to remove a pill.436 So does that make the combination of a staggered board and a poison pill preclusive?

This precise question was asked and answered four months ago in Versata Enterprises, Inc. v. Selectica, Inc. There, Trilogy (the hostile acquiror) argued that in order for the target's defensive measures not to be preclusive: (1) a successful proxy contest must be realistically attainable, and (2) the successful proxy contest must result in gaining control of the board at the next election. The Delaware Supreme Court rejected this argument, stating that "[i]f that preclusivity argument is correct, then it would apply whenever a corporation has both a classified board and a Rights Plan.... [W]e hold that the combination of a classified board and a Rights Plan do not constitute a preclusive defense."437

The Supreme Court explained its reasoning as follows:

The Court concluded: "The fact that a combination of defensive measures makes it more difficult for an acquirer to obtain control of a board does not make such measures realistically unattainable, i.e., preclusive."439 Moreover, citing Moran, the Supreme Court noted that pills do not fundamentally restrict proxy contests, explaining that a "Rights Plan will not have a severe impact upon proxy contests and it will not preclude all hostile acquisitions of Household."440 Arguably the combination of a staggered board plus a pill is at least more preclusive than the use of a rights plan by a company with a pill alone (where all directors are up for election annually, as in Gaylord Container and Moran, because the stockholders could replace the entire board at once and redeem the pill). In any event, though, the Supreme Court in Selectica suggests that this is a distinction without a significant difference, and very clearly held that the combination of a classified board and a Rights Plan is not preclusive, and that the combination may only "delay—but not prevent—a hostile acquiror from obtaining control of the board."441

The Supreme Court reinforced this holding in its Airgas bylaw decision related to this case, when it ruled that directors on a staggered board serve "three year terms" and Airgas could thus not be forced to push its annual meeting from August/September 2011 up to January 2011.442 There, the Supreme Court cited approvingly to the "historical understanding" of the impact of staggered boards:

In addition, the Supreme Court cited its Selectica decision where, as noted above, it had held that "`a classified board would delay—but not prevent—a hostile acquiror from obtaining control of the board, since a determined acquiror could wage a proxy contest and obtain control of two thirds of the target board over a two year period, as opposed to seizing control in a single election."445

I am thus bound by this clear precedent to proceed on the assumption that Airgas's defensive measures are not preclusive if they delay Air Products from obtaining control of the Airgas board (even if that delay is significant) so long as obtaining control at some point in the future is realistically attainable. I now examine whether the ability to obtain control of Airgas's board in the future is realistically attainable.

Air Products has already run one successful slate of insurgents. Their three independent nominees were elected to the Airgas board in September. Airgas's next annual meeting will be held sometime around September 2011. Accordingly, if Airgas's defensive measures remain in place, Air Products has two options if it wants to continue to pursue Airgas at this time:446 (1) It can call a special meeting and remove the entire board with a supermajority vote of the outstanding shares, or (2) It can wait until Airgas's 2011 annual meeting to nominate a slate of directors. I will address the viability of each of these options in turn.

a. Call a Special Meeting to Remove the Airgas Board by a 67% Supermajority Vote

Airgas's charter allows for 33% of the outstanding shares to call a special meeting of the stockholders, and to remove the entire board without cause by a vote of 67% of the outstanding shares.447 Defendants make much of the fact that "[o]f the 85 Delaware companies in the Fortune 500 with staggered boards, only six (including Airgas) have charter provisions that permit shareholders to remove directors without cause between annual meetings (i.e., at a special meeting and/or by written consent)."448 This argument alone is not decisive on the issue of preclusivity, although it does distinguish the particular facts of this case from the typical case of a company with a staggered board.449 Ultimately, though, it does not matter how many or how few companies in the Fortune 500 with staggered boards allow shareholders to remove directors by calling a special meeting; what matters is the "realistic attainability" of actually achieving a 67% vote of the outstanding Airgas shares in the context of Air Products' hostile tender offer (which equates to achieving approximately 85-86% of the unaffiliated voting shares),450 or whether, instead, Airgas's continued use of its defensive measures is preclusive because it is a near "impossible task."451

The fact that something might be a theoretical possibility does not make it "realistically attainable." In other words, what the Supreme Court in Unitrin and Selectica meant by "realistically attainable" must be something more than a mere "mathematical possibility" or "hypothetically conceivable chance" of circumventing a poison pill. One would think a sensible understanding of the phrase would be that an insurgent has a reasonably meaningful or real world shot at securing the support of enough stockholders to change the target board's composition and remove the obstructing defenses.452 It does not mean that the insurgent has a right to win or that the insurgent must have a highly probable chance or even a 50-50 chance of prevailing. But it must be more than just a theoretical possibility, given the required vote, the timing issues, the shareholder profile, the issues presented by the insurgent and the surrounding circumstances.

The real-world difficulty of a judge accurately assessing the "realistically attainable" factor, however, was made painfully clear during the January supplemental evidentiary hearing through the lengthy and contentious testimony of two "proxy experts." Airgas offered testimony from Peter C. Harkins, the President and CEO of D.F. King & Co. Inc. and Air Products presented testimony by Joseph J. Morrow, the founder and CEO of Morrow & Co., LLC.453 Both experts have extensive experience advising corporate clients in contested proxy solicitations and corporate takeover contests, as well as extensive (and lucrative) experience opining in courtrooms as experts on stockholder voting and investment behavior.454 Ultimately, and despite Harkins' pseudo-scientific "bottoms-up analysis" and Morrow's anecdotal approach, I found both experts' testimony essentially unhelpful and unconvincing on the fundamental question whether a 67% vote of Airgas stockholders at a special meeting is realistically attainable. Morrow concluded that it is not realistically attainable, because the margin needed to attain 67% is so high given the percentage of unaffiliated stockholders likely to vote. Airgas's officers and directors own 11% of Airgas stock. In addition, 12% of Airgas stock did not vote in the September 2010 contested election (which is fairly typical, even in contested elections). That equals 23% of Airgas's outstanding stock that is arguably "not available" to Air Products' solicitation at a special stockholder meeting. Add to this 23% number the 2% that Air Products itself owns, and you are left with an "available pool" of 75% of the outstanding Airgas stock from which Air Products would need to garner 65% (which, added to its own 2%, would yield the required 67% of outstanding shares). Thus, following this reasoning, Air Products would need to attract the support of about 85% of the 75% of unaffiliated and likely to vote shares in order to reach the 67% vote required to oust the incumbent Airgas directors.455 According to Morrow, this margin (85% of the unaffiliated and voting shares) has never been achieved in any contested election that he can recall in his 46 years in this business.456 Harkins likewise could not give a real world example where an insurgent garnered that margin of votes in a contested election.457

Harkins, on the other hand, based his opinion that 67% is "easily" achievable (again, despite the glaring lack of any real world instance where an insurgent has ever achieved such a supermajority in a contested election) on his "bottoms-up" analysis of various categories of Airgas stockholders and their "likely" voting behavior, based in part on the Airgas stockholder voting patterns in the September 2010 election.458 Although Harkins's categorical computations have a certain scientific or mathematical patina, they are all ultimately based on assumptions, guesses and speculation—albeit "educated" assumptions and guesses. For example, Harkins assumed that 100% of the voting arbitrageurs and event-driven investors will vote for Air Products' nominees at a special election, despite the fact that only 90% voted for Air Products nominees at the September 2010 contested short slate election and despite the absence of any historical instance where a bidder received unanimous support from this stockholder category.459 Similar flaws infect other categorical assumptions in Harkins' "bottoms-up" methodology, including his assumptions about the likely vote by index funds (where his prediction again is unsupported by the actual index fund votes in September 2010),460 about the likely vote of "dual" stockholders who own stock in both Airgas and Air Products, and about the probability that proxy advisory firm ISS will support an effort to remove an entire slate of directors. If one of these key "assumptions" is incorrect, Harkins' model collapses and the "easy" 67% vote becomes mathematically impossible.

To cite one easy example, Harkins' "bottoms-up" analysis is based on Airgas's stockholder profile as of December 9, 2010.461 The largest category of voting stockholders in the chart (by far) is the "arbitrageurs and event-driven investors" group, accounting for 46% of the total outstanding shares. Harkins assumes that 95% of them will vote, and as noted above, that 100% of those voting will vote in favor of Air Products' nominees at a special election. This gives a total of 43.7% of the outstanding shares voting for Air Products—a large chunk of the total required to get to 67%.462 Even plugging in Morrow's "assumption" that only 92.5% (rather than 95%) of this group will vote, and 100% of them vote in favor of Air Products, that still totals 42.5% of the total outstanding.463 But Airgas's stockholder profile, as Harkins admitted, is "continuously changing."464 McCausland testified that the arb concentration is down from 46% to 41%.465 That single assumption alone (a difference that equates to almost 5% of the total outstanding that Harkins assumes would vote in favor of Air Products under either Harkins' or Morrow's voting assumptions) essentially renders the rest of the numbers in Harkins' chart meaningless—they do not add up to 67% unless he re-solves for "X" (the percentage of "Other Institutional Investors" needed to vote in favor of Air Products). It may be that additional arbs would swarm in upon the announcement of a special meeting.466 It may not. And in the end, I guess, he can always just re-solve for "X." What this shows, though, is that the entire exercise does not answer the "realistic attainability" question one way or the other—it is a game of speculation.

Thus, the expert opinions proffered on how stockholders are likely to vote at a special meeting called to remove the entire Airgas board were unhelpful and not persuasive. The expert witnesses neither took the time nor made the effort to speak with any Airgas stockholders—whether retail, index, institutional investors who subcontract voting to ISS, long or short hedge funds, dual stockholders or event-driven stockholders—about how they might vote if such a special stockholder meeting were actually convened.467 To that extent, each expert failed to support his conclusions in a manner that a judge would find reliable. In short, I am not persuaded by Harkins that 67% is realistically attainable, especially given the absence of any historical instance where a bidder achieved such a margin in a contested election.468 Both experts essentially admitted, moreover, that one cannot really know how an election will turn out until it is held and that, generally speaking, it is easier to obtain investor support for electing a minority insurgent slate than for a controlling slate of directors.469

In the end, however, the most telling aspect of the expert testimony was the statement that Air Products could certainly achieve 67% of the vote if its offer was "sufficiently appealing."470 Harkins explained that he was "not predicting that a $70 offer will result in a 67 percent vote to remove the board."471 He was simply predicting that, with an appealing enough offer or platform, a 67% vote is possible, but he was not providing his opinion (nor did he have one) on how appealing $70 is, or whether it would make victory at a special election attainable.472 The following final, tautological insight by the expert just about sums up the usefulness of this particular day in the life of a trial judge:

But what seems clear to me, quite honestly, is that a poison pill is assuredly preclusive in the everyday common sense meaning of the word; indeed, its rasion d'etre is preclusion—to stop a bid (or this bid) from progressing. That is what it is intended to do and that is what the Airgas pill has done successfully for over sixteen months. Whether it is realistic to believe that Air Products can, at some point in the future, achieve a 67% vote necessary to remove the entire Airgas board at a special meeting is (in my opinion) impossible to predict given the host of variables in this setting, but the sheer lack of historical examples where an insurgent has ever achieved such a percentage in a contested control election must mean something. Commentators who have studied actual hostile takeovers for Delaware companies have, at least in part, essentially corroborated this common sense notion that such a victory is not realistically attainable.474 Nonetheless, while the special meeting may not be a realistically attainable mechanism for circumventing the Airgas defenses, that assessment does not end the analysis under existing precedent.

b. Run Another Proxy Contest

Even if Air Products is unable to achieve the 67% supermajority vote of the outstanding shares necessary to remove the board in a special meeting, it would only need a simple majority of the voting stockholders to obtain control of the board at next year's annual meeting. Air Products has stated its unwillingness to wait around for another eight months until Airgas's 2011 annual meeting.475 There are legitimately articulated reasons for this— Air Products' stockholders, after all, have been carrying the burden of a depressed stock price since the announcement of the offer.476 But that is a business determination by the Air Products board. The reality is that obtaining a simple majority of the voting stock is significantly less burdensome than obtaining a supermajority vote of the outstanding shares, and considering the current composition of Airgas's stockholders (and the fact that, as a result of that shareholder composition, a majority of the voting shares today would likely tender into Air Products' $70 offer477), if Air Products and those stockholders choose to stick around, an Air Products victory at the next annual meeting is very realistically attainable.

Air Products certainly realized this. It had actually intended to run an insurgent slate at Airgas's 2011 annual meeting— when everyone thought that meeting was going to be held in January. The Supreme Court has now held, however, that each annual meeting must take place "approximately" one year after the last annual meeting.478 If Air Products is unwilling to wait another eight months to run another slate of nominees, that is a business decision of the Air Products board, but as the Supreme Court has held, waiting until the next annual meeting "delay[s]—but [does] not prevent—[Air Products] from obtaining control of the board."479 I thus am constrained to conclude that Airgas's defensive measures are not preclusive.480

2. Range of Reasonableness

"If a defensive measure is neither coercive nor preclusive, the Unocal proportionality test requires the focus of enhanced judicial scrutiny to shift to the range of reasonableness."481 The reasonableness of a board's response is evaluated in the context of the specific threat identified—the "specific nature of the threat [] `sets the parameters for the range of permissible defensive tactics' at any given time."482

Here, the record demonstrates that Airgas's board, composed of a majority of outside, independent directors, acting in good faith and with numerous outside advisors483 concluded that Air Products' offer clearly undervalues Airgas in a sale transaction. The board believes in good faith that the offer price is inadequate by no small margin. Thus, the board is responding to a legitimately articulated threat.

This conclusion is bolstered by the fact that the three Air Products Nominees on the Airgas board have now wholeheartedly joined in the board's determination—what is more, they believe it is their fiduciary duty to keep Airgas's defenses in place. And Air Products' own directors have testified that (1) they have no reason to believe that the Airgas directors have breached their fiduciary duties,484 (2) even though plenty of information has been made available to the stockholders, they "agree that Airgas management is in the best position to understand the intrinsic value of the company,"485 and (3) if the shoe were on the other foot, they would act in the same way as Airgas's directors have.486

In addition, Air Products made a tactical decision to proceed with its offer for Airgas in the manner in which it did. First, Air Products made a choice to launch a proxy contest in connection with its tender offer. It could have—at that point, in February 2010—attempted to call a special meeting to remove the entire board. The 67% vote requirement was a high hurdle that presented uncertainty, so it chose to proceed by launching a proxy contest in connection with its tender offer.

Second, Air Products chose to replace a minority of the Airgas board with three independent directors who promised to take a "fresh look." Air Products ran its nominees expressly premised on that independent slate. It could have put up three nominees premised on the slogan of "shareholder choice." It could have run a slate of nominees who would promise to remove the pill if elected.487 It could have gotten three directors elected who were resolved to fight back against the rest of the Airgas board.

Certainly what occurred here is not what Air Products expected to happen. Air Products ran its slate on the promise that its nominees would "consider without any bias [the Air Products] Offer," and that they would "be willing to be outspoken in the boardroom about their views on these issues."488 Air Products got what it wanted. Its three nominees got elected to the Airgas board and then questioned the directors about their assumptions. (They got answers.) They looked at the numbers themselves. (They were impressed.) They requested outside legal counsel. (They got it.) They requested a third outside financial advisor. (They got it.) And in the end, they joined in the board's view that Air Products' offer was inadequate. John Clancey, one of the Air Products Nominees, grabbed the flag and championed Airgas's defensive measures, telling the rest of the board, "We have to protect the pill."489 David DeNunzio, Airgas's new independent financial advisor from Credit Suisse who was brought in to take a "fresh look" at the numbers, concluded in his professional opinion that the fair value of Airgas is in the "mid to high seventies, and well into the mid eighties."490 In Robert Lumpkins' opinion (one of the Air Products Nominees), "the company on its own, its own business will be worth $78 or more in the not very distant future because of its own earnings and cash flow prospects ... as a standalone company."491

The Supreme Court has clearly held that "the `inadequate value' of an all cash for all shares offer is a `legally cognizable threat.'"492 Moreover, "[t]he fiduciary duty to manage a corporate enterprise includes the selection of a time frame for achievement of corporate goals. That duty may not be delegated to the stockholders."493 The Court continued, "Directors are not obligated to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy."494 Based on all of the foregoing factual findings, I cannot conclude that there is "clearly no basis" for the Airgas board's belief in the sustainability of its long-term plan.

On the contrary, the maintenance of the board's defensive measures must fall within a range of reasonableness here. The board is not "cramming down" a management-sponsored alternative—or any company-changing alternative.495 Instead, the board is simply maintaining the status quo, running the company for the long-term, and consistently showing improved financial results each passing quarter.496 The board's actions do not forever preclude Air Products, or any bidder, from acquiring Airgas or from getting around Airgas's defensive measures if the price is right. In the meantime, the board is preventing a change of control from occurring at an inadequate price. This course of action has been clearly recognized under Delaware law: "directors, when acting deliberately, in an informed way, and in the good faith pursuit of corporate interests, may follow a course designed to achieve long-term value even at the cost of immediate value maximization."497

Shareholder plaintiffs argue in their Post-Supplemental Hearing brief that Delaware law adequately protects any non-tendering shareholders in the event a majority of Airgas shareholders did tender into Air Products' offer because, as a result of McCausland and the Airgas board and management's ownership positions in Airgas, there is no way that Air Products would be able to effect a short-form merger under DGCL § 253 at the inadequate $70 price.498 They argue that when Air Products would then seek to effect a long-form merger on the back end—as it has stated is its intention—any deal would be subject to entire fairness and claims for appraisal rights.

But this protection may not be adequate for several reasons. First, despite Air Products' stated intention to consummate a merger "as soon as practicable" by acquiring any non-tendered shares "as quick as the law would allow,"499 there are no guarantees; there is a risk that no back end deal will take place. Second, and more importantly, on the back end, control will have already been conveyed to Air Products.500 The enormous value of synergies will not be factored into any appraisal.501 Additionally, much of the projected value in Airgas's five year plan is based on the expected returns from substantial investments that Airgas has already made— e.g., substantial capital investments, the SAP implementation. There is no guarantee (in fact it is unlikely) a fair value appraisal today would account for that projected value—value which Airgas's newest outside financial advisor describes as "orders of magnitude greater than what's been assumed and which would give substantially higher values."502

C. Pills, Policy and Professors (and Hypotheticals)

When the Supreme Court first upheld the use of a rights plan in Moran, it emphasized that "[t]he Board does not now have unfettered discretion in refusing to redeem the Rights."503 And in the most recent "pill case" decided just this past year, the Supreme Court reiterated its view that, "[a]s we held in Moran, the adoption of a Rights Plan is not absolute."504 The poison pill's limits, however, still remain to be seen.

The merits of poison pills, the application of the standards of review that should apply to their adoption and continued maintenance, the limitations (if any) that should be imposed on their use, and the "anti-takeover effect" of the combination of classified boards plus poison pills have all been exhaustively written about in legal academia.505 Two of the largest contributors to the literature are Lucian Bebchuk (who famously takes the "shareholder choice" position that pills should be limited and that classified boards reduce firm value) on one side of the ring, and Marty Lipton (the founder of the poison pill, who continues to zealously defend its use) on the other.506

The contours of the debate have morphed slightly over the years, but the fundamental questions have remained. Can a board "just say no"? If so, when? How should the enhanced judicial standard of review be applied? What are the pill's limits? And the ultimate question: Can a board "just say never"? In a 2002 article entitled Pills, Polls, and Professors Redux, Lipton wrote the following:

Well, in this case, the Airgas board has continued to say "no" even after one proxy fight. So what Lipton has called the "largely theoretical possibility of continued resistance after loss of a proxy fight" is now a real-world situation.508 Vice Chancellor Strine recently posed Professor Bebchuk et al.'s Effective Staggered Board ("ESB")509 hypothetical in Yucaipa:

At that point, it is argued, it may be appropriate for a Court to order redemption of a poison pill. That hypothetical, however, is not exactly the case here for two main reasons. First, Air Products did not run a proxy slate running on a "let the shareholders decide" platform. Instead, they ran a slate committed to taking and independent look and deciding for themselves afresh whether to accept the bid. The Air Products Nominees apparently "changed teams" once elected to the Airgas board (I use that phrase loosely, recognizing that they joined the Airgas board on an "independent" slate with no particular mandate other than to see if a deal could be done). Once elected, they got inside and saw for themselves why the Airgas board and its advisors have so passionately and consistently argued that Air Products' offer is too low (the SAP implementation, the as-yet-unrealized benefits from recent significant capital expenditures, the timing in which Airgas historically has emerged from recessions, the intrinsic value of this company, etc.). The incumbents now share in the rest of the board's view that Air Products' offer is inadequate—this is not a case where the insurgents want to redeem the pill but they are unable to convince the majority. This situation is different from the one posited by Vice Chancellor Strine and the three professors in their article, and I need not and do not address that scenario.

Second, Airgas does not have a true "ESB" as articulated by the professors. As discussed earlier, Airgas's charter allows for 33% of the stockholders to call a special meeting and remove the board by a 67% vote of the outstanding shares.511 Thus, according to the professors, no court intervention would be necessary in this case.512 This factual distinction also further differentiates this case from the Yucaipa hypothetical.

CONCLUSION

Vice Chancellor Strine recently suggested that:

There is no question that poison pills act as potent anti-takeover drugs with the potential to be abused. Counsel for plaintiffs (both Air Products and Shareholder Plaintiffs) make compelling policy arguments in favor of redeeming the pill in this case—to do otherwise, they say, would essentially make all companies with staggered boards and poison pills "takeover proof."514 The argument is an excellent sound bite, but it is ultimately not the holding of this fact-specific case, although it does bring us one step closer to that result.

As this case demonstrates, in order to have any effectiveness, pills do not—and can not—have a set expiration date. To be clear, though, this case does not endorse "just say never." What it does endorse is Delaware's long-understood respect for reasonably exercised managerial discretion, so long as boards are found to be acting in good faith and in accordance with their fiduciary duties (after rigorous judicial fact-finding and enhanced scrutiny of their defensive actions). The Airgas board serves as a quintessential example.

Directors of a corporation still owe fiduciary duties to all stockholders—this undoubtedly includes short-term as well as long-term holders. At the same time, a board cannot be forced into Revlon mode any time a hostile bidder makes a tender offer that is at a premium to market value. The mechanisms in place to get around the poison pill—even a poison pill in combination with a staggered board, which no doubt makes the process prohibitively more difficult—have been in place since 1985, when the Delaware Supreme Court first decided to uphold the pill as a legal defense to an unwanted bid. That is the current state of Delaware law until the Supreme Court changes it.

For the foregoing reasons, Air Products' and the Shareholder Plaintiffs' requests for relief are denied, and all claims asserted against defendants are dismissed with prejudice. The parties shall bear their own costs.

An Order has been entered that implements the conclusions reached in this Opinion.