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February 8, 2010 4:17 PM

Bad Gas: Cravath Caught in Crossfire Over $5.1 Billion Takeover Bid

Posted by Brian Baxter

Industrial gas producer Airgas filed suit against Cravath, Swaine & Moore on Friday over the firm's role as legal adviser to rival Air Products on that company's $5.1 billion bid for Airgas.

Air Products announced on Friday its unsolicited offer for Airgas, which for months has resisted entreaties from its larger rival, including rejecting an October offer whereby Air Products would assume $1.9 billion in Airgas debt. The New York Times reports that by making its offer now, Air Products hopes to capitalize on what it perceives as current weaknesses in Airgas's financial health.

But with the atmosphere surrounding the deal getting increasingly hostile, it appears Airgas is not going down without a fight. The company has retained takeover defense experts Daniel Neff and David Katz from Wachtell, Lipton, Rosen & Katz to deflate the Air Products bid. (Among the more notable deals Neff has been involved in over the last couple of years: he and a team from Wachtell advised Rohm and Haas on its troubled $15.3 billion acquisition by Dow Chemical, which finally closed last April.)

Based in the Pennsylvania municipalities of Allentown and Radnor, respectively, Air Products and Airgas are headquartered just an hour from one another. But while they may be close geographically, the two companies remain far apart on the terms of any prospective merger. According to an analysis of the Air Products offer by The New York Times's Deal Professor Steven Davidoff, a long takeover war looms between the two industrial gas producers.

Then there's the litigation battle. Air Products filed a complaint on Thursday in Delaware's Chancery Court against Airgas, claiming that the smaller company improperly blocked its board of directors from considering previous Air Products takeover offers. Cravath litigation partners Francis Barron, David Marriott, and Gary Bornstein are representing Air Products in the Delaware litigation along with local counsel Kenneth Nachbar (he of sports gambling notoriety) and Jon Abramczyk from Morris, Nichols, Arsht & Tunnell. (Click here for the Chancery Court complaint, courtesy of The Times's Dealbook.)

Airgas responded by retaining Cozen O'Connor chairman Stephen Cozen, litigation chair Jeffrey Weil, and litigation partner Thomas Wilkinson, Jr., for a civil suit against Cravath in state court in Pennsylvania. In the suit, Airgas claims that Cravath has a conflict of interest and breached its fiduciary duty by representing Air Products because it previously advised Airgas on several financings. According to Airgas's complaint against Cravath, the company has had a client relationship with the firm for 10 years and has paid Cravath about $2 million, including a $320,000 payment last October.

A Cravath spokeswoman tells The Am Law Daily that the suit filed by Airgas and Cozen is "without merit" and declined further comment. (The Am Law Litigation Daily reports that Cravath is being represented by John Guernsey and Nancy Gellman from Conrad O'Brien in the Pennsylvania case.)

Interestingly enough, Airgas's deal counsel at Wachtell now finds itself on the other side of allegations about merger conflicts. Last year the firm became embroiled in the fallout from the previously mentioned deal between Dow and Rohm and Haas. In that dispute, Dow's Kirkland & Ellis lawyers argued in Chancery Court proceedings that Wachtell held "highly confidential and specific information" about Dow's business plans from having previously advised the company on its "transformative strategy."

Wachtell argued that it shouldn't be disqualified because Dow wasn't a current firm client and because Dow never objected to the firm's role during initial deal negotiations, which proved to be a winning argument. The case later settled, but not before Wachtell's Neff swore in an affidavit obtained by The Am Law Litigation Daily that Dow tried to stall the Rohm and Haas merger before the FTC.

It remains to be seen whether the growing contentiousness between Air Products and Airgas will escalate into something equally nasty.

Air Products is being advised on its Airgas offer by Cravath corporate partners James Woolery and Minh Van Ngo in New York and Arnold & Porter antitrust partners Deborah Feinstein in Washington, D.C., and European competition head Marleen Van Kerckhove in Brussels. Air Products's offer for Airgas has not been formally rejected by the company, so the proposed acquisition is not yet hostile.

We've reached out to several of the parties for information on other lawyers involved, and we'll update this post when we have more information.

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