The Delaware Chancery Court recently upheld the use of a shareholder rights plan, or “poison pill,” by Airgas, Inc. (Airgas) to ward off a hostile takeover attempt by Air Products and Chemicals, Inc. (Air Products). The Chancellor’s decision came after a lengthy hostile take-over battle waged by Air Products during which it made an all cash tender offer for all outstanding shares of Airgas. Air Products’s initial offer was priced at $60 per share and ultimately was raised to a final offer of $70 per share. Airgas’s board unanimously concluded that the Air Products offer was inadequate, even after Air Products was able to have three of its own nominees elected to the board, and refused to remove its poison pill.

In a lengthy opinion, Chancellor Chandler concluded that the Airgas board’s refusal to remove its poison pill was proper and not in breach of the board members’ fiduciary duties. Chancellor Chandler analyzed the reasonableness of the Airgas’s board decision to keep the pill in place under the heightened standard set by the Delaware Supreme Court in 1985 in Unocal Corp. v. Mesa Petroleum Co., rejecting Airgas’s argument that the business judgment rule should apply because there was “overwhelming evidence” of the directors’ independence and good faith. Nevertheless, even under the heightened standard set forth in Unocal, which applies because of the “omnipresent specter” that a board may act in its own interests in a takeover situation, Chancellor Chandler concluded that the Airgas board acted reasonably.