Industrial gas supplier Airgas' efforts to stave off a $5.5 billion buyout offer from Air Products got a boost on Tuesday from Delaware's top court, which threw out a bylaw change that would have favored the deal.

The decision by the Delaware Supreme Court overturns a lower court ruling, and keeps Air Products from being able to force Airgas to consider its offer. Airgas has said the bid is too low and that the company is worth about $6.53 billion.

Airgas shares closed down $3.90, or 5.9% , at $62, while Air Products shares fell 93 cents, or 1.1% , to $84.57. Shares of Airgas had been lifted for months on the prospect of a deal with Air Products.

"This decision could spell the end of Air Products' efforts to acquire Airgas as it has indicated in the past that it did not want this process to drag out indefinitely," said Monness, Crespi, Hardt & Co analyst Christopher Shaw.

Air Products said in a statement it was "disappointed" with the court's decision to overturn the bylaw approved by Airgas shareholders.

"Airgas shareholders have been disenfranchised and have lost hundreds of millions of dollars in market value as a result," the company said.

By reversing an October ruling by the Delaware Chancery Court, the Delaware Supreme Court held that Airgas does not need to hold another shareholder meeting in January, meaning that Air Products' attempts to win Airgas stockholders' approval would be stalled until at least next fall.

"This is the end of the road for Air Products' argument in this case," said Paul Regan, acting director of the Institute of Delaware Corporate and Business Law at Widener University. "Its next step isn't in litigation: it may be whether Air Products raises its bid to persuade Airgas' board to come around."

Disenfranchisement
The Delaware Supreme Court said Airgas directors are guaranteed three-year terms on the board and would effectively be disenfranchised if some were voted out in January after less than two-and-a-half years.

Earlier this fall, Airgas shareholders voted by a narrow margin to oust the chairman and replace three members of the board with a new slate that favored Air Products' bid.

Airgas shareholders had also voted to meet again in January, putting three additional seats in play. By Air Products' logic, if it scored the additional three seats, it would have six out of the 10 spots on Airgas' board, and effectively clinch control.

"The January bylaw is invalid not only because it impermissibly shortens the directors' three-year staggered terms ... but also because it amounted to a de facto removal without cause of those directors," the Delaware Supreme Court said in its ruling.

Air Products' legal options in Delaware appear to be exhausted, said Francis Pileggi, a partner at the law firm Fox Rothschild LLP in Wilmington, Delaware.
"As a practical matter, there is nowhere to appeal," he said. "I don't think the U.S. Supreme Court would hear this case. This issue is now conclusively and definitively decided as a matter of Delaware law."

Airgas founder and Chief Executive Peter McCausland praised the ruling, saying it "maintains the balance of bargaining power that Delaware companies with staggered boards have always expected."

Air Products was not immediately available for comment.

The Delaware judges had a bit of fun with the issue of what exactly constitutes a full three-year term.

"We may safely conclude that under any construction of 'annual' within the intended meaning of the Airgas charter ... four months does not qualify," the justices said.