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March 5, 2010 4:40 PM

Airgas Deflated in Chancery Court Battle with Cravath

Posted by Brian Baxter

The Delaware Chancery Court will not disqualify Cravath, Swaine & Moore from advising industrial gas producer Air Products on its $5.1 billion hostile bid for rival Airgas, the court said Friday afternoon.

Air Products launched its bid for Airgas on February 5. Cravath was tapped to represent Air Products, while Wachtell, Lipton, Rosen & Katz signed on to negotiate the deal for Airgas. Within days, Airgas sued Cravath in federal court in Pennsylvania and filed a complaint against Air Products in Delaware, claiming that the firm was conflicted out of representing Air Products and had breached its fiduciary duty, because it had previously advised Airgas on several financings.

The decision by Chancellor William Chandler III of the Chancery Court means that Cravath will stay in the driver's seat as counsel to Air Products in its efforts to acquire Airgas. Cravath corporate partners James Woolery and Minh Van Ngo in New York are advising Air Products, while partners Francis Barron, David Marriott, and Gary Bornstein represent the company in the Delaware litigation.

A Cravath spokeswoman released the following statement: "Chancellor Chandler's ruling speaks for itself. We have no comment beyond it." Air Products was a bit more effusive in proclaiming victory.

"From the beginning, [the litigation] has been a sideshow to divert attention from the real issue--the continuing effort by Airgas to block its shareholders from receiving a 38% all-cash premium and immediate liquidity for their shares," Air Products said in a statement. "Airgas has wasted shareholders' time and money pursuing baseless litigation and losing arguments before three separate courts."

While the two companies are based in municipalities in eastern Pennsylvania less than an hour's drive from one another, they still remain far apart on the terms of any prospective merger. Airgas formally rejected the hostile bid by Air Products in early February.

Airgas singled out the value of Air Products's offer in a brief statement in response to the Chancery Court's decision.

"Ultimately, however, the real issue is Air Products's unsolicited tender offer is value, and this ruling doesn't change the fact that Air Products's $60 per share offer grossly undervalues Airgas," said Airgas vice president of communications and investor relations Jay Worley in a statement. "We are prepared to take all necessary steps to preserve and protect stockholder value."

Airgas suffered a setback on February 22 when a U.S. district court judge in Pennsylvania stayed its civil suit against Cravath. As we previously reported, the federal court determined that it should be up to the Chancery Court to decide whether or not the firm should be disqualified from representing Air Products. The ruling was considered a victory for Air Products and Cravath, since both wanted the issue to be litigated in Delaware. (Cravath turned to Philadelphia's Conrad O'Brien for the Pennsylvania case, while Cozen O'Connor advised Airgas.)

But the Delaware venue turned out to be equally unfriendly to Airgas's cause. The Am Law Litigation Daily's Alison Frankel noted last week that Chancellor Chandler had previously rejected a more limited motion by Dow Chemical to bar Wachtell from questioning certain Dow witnesses over its turbulent $15.3 billion acquisition of Rohm and Haas.

Wachtell had a unique vantage point for the current dispute: the firm is representing Airgas both in the Delaware litigation with Cravath and on the company's effort to fend off the hostile bid by Air Products. (Arnold & Porter is serving as antitrust counsel to Air Products on its offer for Airgas.)

The Am Law Litigation Daily has more on the Chancery Court's decision here.

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