February 16, 2010 3:42 PM

Air Products / Airgas War of Words Heats Up

Posted by Zach Lowe

The battle over Cravath, Swaine & Moore's role in Air Products and Chemicals' attempted takeover of rival Airgas has become so pitched that you could almost forget a $5.1 billion unsolicited takeover is at stake here. 

The war of words (or, more accurately, of letters) has intensified over the past couple of days, with lawyers for each side sending missives about whether Cravath should be disqualified from representing Air Products after doing finance work for Airgas for nearly a decade. Airgas (which has retained Wachtell, Lipton, Rosen & Katz) began the exchange of correspondence Monday, when it sent a letter to Chancellor William Chandler at Delaware's Court of Chancery, where Air Products first sued Airgas on Feb. 4 for failing to even consider Air Products' offers for the company. Airgas responded on February 5 by suing Cravath in Pennsylvania state court, claiming Cravath was privy to inside Airgas information and should therefore be disqualified from the Air Products team. 

In its Monday letter to Chandler, Airgas argues that a Pennsylvania courtroom is the proper place for the Cravath hearing. In response, Air Products and local counsel Kenneth Nachbar of Morris, Nichols, Arsht & Tunnell drafted their own letter to Chandler, urging him to decide on Cravath's fate in Delaware and accusing Airgas of trying to "circumvent" Chandler's authority by suing in Pennsylvania.

Airgas also has enlisted a legal ethics expert who has issued an opinion letter in which he claims Cravath was working under "a clear and serious conflict of interest" while it was helping Air Products formulate its takeover bid last fall, according to a copy of the letter obtained by The Am Law Daily. In his letter, Geoffrey Hazard, Jr., a professor at the University of Pennsylvania Law School, says Cravath and partner Ronald Kami likely obtained nonpublic information about Airgas's finances between 2001 and late 2009, a period during which Cravath advised the company on financing issues. (Cravath billed Airgas about $2 million during that span, including about $870,000 combined in 2008 and 2009, court records show.) Air Products opened discussions with Airgas on Oct. 15, 2009, but Kami did not officially terminate Cravath's relationship with Airgas until Oct. 28, 2009, which he did without explaining why, according to Hazard's letter. The move violated the so-called hot potato rule, which holds that a firm cannot get out of a conflict simply by dropping one client on short notice, Hazard wrote. 

Sources with ties to the Cravath/Air Products side did not comment on Hazard's letter today, but one source familiar with the situation says Cravath and Air Products have "several" expert opinions of their own ready to be released anytime. 

It's unclear now exactly when or where the next hearing on Cravath's standing in the case will be held. We'll keep you posted. 

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