February 18, 2011 11:00 AM
Litigator of the Week: Marc Wolinsky of Wachtell, Lipton, Rosen & Katz
Posted by David Bario
The portentous opening passage of Wachtell, Lipton, Rosen & Katz's Feb. 16 client memo reminded us of the introductory crawl in George Lucas's first Star Wars movie. Except the action wasn't in a galaxy far, far, away, but in the Delaware Chancery Court, where Chancellor William Chandler III on Tuesday upheld the poison pill defense that Airgas used to fend off a hostile takeover by Air Products.
"Almost thirty years ago, our firm announced there was a way--the poison pill--to level the playing field between corporate raiders and a board of directors acting to protect the interests of the corporation and its shareholders," the Martin Lipton-signed memo begins. The M&A universe is well aware by now of how the story ends: Like the Delaware Supreme Court the first time Wachtell litigated the legality of the poison pill in 1985, Chancellor Chandler ruled that corporate directors, acting in good faith, have the power to use a poison pill to defeat a hostile bid they consider inadequate. In the face of the chancellor's ruling, Air Products dropped its bid for Airgas Tuesday night. And the powerful takeover defense that Martin Lipton created in 1982 will live on. (Here's an interesting video of Lipton describing the origins of the pill.)
It's quite fitting that the burden of defending a board's right to use the poison pill fell on Lipton's firm, which has represented Airgas throughout its yearlong effort to fend off Air Products. Wachtell's Marc Wolinsky, who delivered Airgas's closing argument to Chancellor Chandler on Feb. 8, told us that upholding the power of a corporate board to deploy a poison pill was an important victory for his firm, for Airgas, and for any company facing a hostile takeover. "The issues go to the core of what we do and what every firm that represents target companies does," he said.
Wolinsky's final argument before Chancellor Chandler, as we've documented, was the culmination of a pitched battle for control of Airgas. Since Air Products made its first bid public last February, the takeover fight has featured a bitter (and still raging) conflicts dispute between Airgas and Cravath, Swaine & Moore, which represented Air Products in the M&A fight, and a full Chancery Court trial and Delaware Supreme Court appeal over Air Products's ultimately unsuccessful attempt to speed up the calendar for Airgas's annual meeting in order to seed the Airgas board with Air Products supporters.
But by the time Wolinsky returned to Chancery Court in January to defend the Airgas pill in a hearing before Chandler, the case had boiled down to a single question: Was the Airgas board, after 14 months and in defiance of shareholder approval of Air Products's $70-per-share offer, justified in continuing to use its pill to resist the offer? Air Products, represented in closing arguments by Kenneth Nachbar of Morris Nichols Arsht & Tunnell, argued that the Airgas pill had long since ceased to serve its intended short-term purpose and that the company's shareholders should be permitted to make a fully informed decision to tender their shares.
Wolinsky's closing argument lasted a full three and a half hours. In addition to appealing to Delaware precedent--particuarly Unocal v. Mesa Petroleum, Unitrin v. American General Corp., and Paramount Communications v. Time Inc.--he played a clip from A Streetcar Named Desire to argue that Air Products was asking Airgas shareholders to depend on "the kindness of strangers" rather than their elected board's judgment that a $70 bid was too low.
"That's [Air Products CEO] John McGlade, walking the Airgas shareholders to the insane asylum and [saying] our board is breaching its fiduciary duty because we've decided, 'You know what, we'll take care of our own,'" Wolinsky argued. (Chancellor Chandler asked if popcorn was available.)
Chandler ruled that the Airgas board had made a good-faith determination--backed by independent advisors--that the Air Products offer was inadequate, and that it therefore could treat the offer as a legitimate threat under Delaware precedent warranting the poison pill defense. Though the chancellor appeared to be holding his nose at times, he concluded, "The power to defeat an inadequate hostile tender offer ultimately lies with the board of directors."
We asked Wolinsky if, apart from the stakes, the trial had been particularly tough. "No," he said, "because I had the A-team from Wachtell Lipton and from Potter Anderson & Corroon. It was the strongest team of litigators that I've ever been associated with." (The Airgas team included Wachtell heavyweights Theodore Mirvis and Kenneth Forrest, as well as Donald Wolfe, Jr., and Kevin Shannon of Potter Anderson.)
That kind of legal muscle couldn't have come cheap for Airgas--Wachtell may have invented the poison pill, but we're sure the firm wasn't defending it out of paternal love. But for Airgas, whose shares have been trading higher since Tuesday's decision, the investment paid off.