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Air Products, Airgas Begin Delaware Trial Over Poison Pill

By Maxwell Murphy Of DOW JONES NEWSWIRES The trial to decide the Air Products & Chemicals Inc. (APD) challenge to the Airgas Inc. (ARG) poison pill began Tuesday in Delaware, and both sides remain entrenched in their respective views in a case that could have broad implications on how the takeover defenses are treated under Delaware law. Airgas lawyers focused early on Air Products' use of the phrase "best and final" to describe its recently raised, hostile bid of $70 in cash for every Airgas share, questioning whether it truly means just that. Air Products Chief Executive John McGlade for the first time on Tuesday introduced the possibility that Air Products would hold a "subsequent offering period" to allow Airgas shareholders to still receive $70 if they don't tender into the current offer but Air Products does gain a controlling stake. Airgas's poison pill, or shareholder rights plan as it's formally known, effectively prohibits Air Products from completing the current tender. Delaware courts have almost always ruled in favor of the legitimacy of corporate pills since they first came into fashion in the 1980s. Whichever way the courts decide, the final decision will set precedent and color future pill challenges. The losing side may appeal the decision to the Delaware Supreme Court, which has already overturned an Air Products victory in a previous case. It had ruled against the judge, Chancellor William Chandler, who is also sitting on the bench for this case, and overturned his decision that allowed Airgas shareholders to force a move of the next Airgas annual meeting to this month from later in the year. That move would have allowed Air Products to get three more directors nominated to the Airgas board, on top of the three for which it won Airgas shareholders' approval in September. Those three joined the existing Airgas board in unanimously rejecting the $70 offer and setting $78 as the minimum bid for deal negotiations to begin, a starting price Airgas Chief Executive Peter McCausland noted would still allow the deal to be accretive to Air Products from day one. For its part, Air Products attorneys questioned the validity of the Airgas board's position that it, not shareholders, should determine the appropriate sale price for Airgas. McCausland said the board is better informed than its shareholders, but noted that its shareholders can remove its board members without cause, either at the annual meeting or special shareholder meetings, if they are dissatisfied. McCausland argued that the arbitrageurs, who poured into the stock after Air Products made public its first offer nearly a year ago, don't care about the appropriate price for a deal. Arbs' holdings have fallen to about 41% of Airgas shares from upwards of 55% earlier as new, long-term shareholders have come back to Airgas, he said, and the arbs simply want a deal to happen quickly. In testimony, McCausland said Airgas Chairman John Van Roden told him that he believed the valuation methodology Air Products was using to determine a fair Airgas price was "ridiculous." McCausland said its standalone value, absent any offers, is $63 a share, and the strategic takeover premium should be 35% to 40%, meaning Airgas's value in a takeover should be in the "mid-to-high $80s." The trial resumes Wednesday morning at 9 a.m. EST. Airgas stock closed down 2% Tuesday at $62.03 each, while Air Products edged up 0.2% at $86.68 a share. -By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com --Peg Brickley contributed to this article.

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