By Tom Hals
WILMINGTON, Delaware (Reuters) - Air Products and Chemicals Inc <APD.N> will take its $5.5 billion bid for rival industrial gas supplier Airgas Inc <ARG.N> to court on Monday, and the outcome could have big implications for future hostile takeovers.
The companies have sued each other seeking to resolve their standoff, and some Airgas shareholders have filed their own lawsuit against the Airgas board. All three cases will be tried at once.
At stake in the trial in Delaware Chancery Court is Air Products' bid to command a leading share of the North American industrial gas market, which supplies gases such as argon, helium and nitrogen for use in hospitals, welding and refrigeration.
The combined company would twin Air Products gas supplies with Airgas's sales force, giving it increased leverage to raise prices while cutting costs.
The case also will put the spotlight on commonly used anti-takeover tactics, including poison pill provisions and staggered board elections, and whether they are valid.
If Air Products succeeds in shooting down Airgas' anti-takeover protections, it "creates a large hole in what has been a fairly effective defensive technique," said Brian Quinn, a professor at the Boston College Law School.
Both sides will put their chief executives on the stand to argue their position over the course of the five-day trial in front of Judge William Chandler in Georgetown, Delaware.
Like a majority of large American businesses, both companies are incorporated in Delaware. The state's Chancery Court has a long history of deciding important business disputes, and specialists in the state's law said this case could force many companies to revisit bylaws aimed at preventing hostile takeovers.
"What happens in a lot of these cases is someone comes up with a new idea and it's adopted," said Quinn. "The defense has to change as well."
In February, Allentown, Pennsylvania-based Air Products made public its bid, which also set off the first two lawsuits in the case.
Both of those were aimed at Airgas's poison pill, which prevents any one shareholder from building a large stake without board approval, and sought to force Airgas to negotiate a deal.
Air Products won a victory last month taking aim at the staggered board defense. Scores of big companies use this tactic, which allows for a few directors to be elected each year rather than the entire board, slowing takeover efforts.
Three director nominees backed by Air Products were elected to the Airgas board at the company's annual meeting in September.
At the meeting, shareholders also approved a bylaw that brings forward the next annual meeting to January, when Air Products can try to replace three more directors and gain de facto control.
Airgas said it does not believe the bylaw passed, because it was approved by fewer than 67 percent of outstanding shares. As a result, Airgas filed its own lawsuit.
Airgas said in court papers the staggered board protects minority shareholders and long-term investors by ensuring they have an advocate who can get the best price for their stock.
However, specialists in corporate law questioned that argument.
"Whoever owns your stock owns your stock. No one owns your stock with a sign that says 'long-term investors'," said Charles Elson, a professor at the University of Delaware.
Elson said disputes over poison pills and staggered boards usually boiled down to one question.
"Is this company ultimately going to get sold? The answer generally is yes," he said, because that is the wish of shareholders. "And if they don't get sold, it's a problem for the system."
The three cases are: Air Products & Chemicals Inc v Airgas Inc, No. 5249; Hollywood Police Officers Retirement System v Airgas Inc, No. 5256; and Airgas Inc et al v Air Products & Chemicals Inc, Delaware Chancery Court.
(Reporting by Tom Hals, editing by Dave Zimmerman)