Airgas, which distributes industrial, medical, and specialty gases, welding supplies, safety products, and tools, recently used a "poison pill" to keep away potential buyer Air Products & Chemicals. Now a Delaware court has ruled in favor of Airgas's method of defending against a hostile takeover.

The shareholders' rights plans known as poison pills are not as common as they once were, but the Delaware Chancery Court ruling means that corporate boards may begin using them again more frequently. In 2001 alone, there were over 2000 companies with poison pill plans at the beginning of the year. By the end of 2001 there were less than 900.

Poison pills make hostile takeovers difficult and expensive. They are typically triggered if someone buys a predetermined percentage of a company. This is usually ten or twenty percent. The target company may have a plan to flood the market with new shares, making a hostile takeover too expensive to try.

The drawback is that directors could use the poison pill to try to stay in place and maintain the status quo for their own reasons, rather than use it to try to find the best alternative for the company. Shareholders have little power to influence events if the poison pill is abused.

Poison pills have lost some luster as ideas of good corporate governance have changed. For that matter, hostile bidders have become more clever in their plans as well. Now, though, poison pills may make a comeback. Poison pill plans that are shorter and more specific in their goals may become popular.

San Diego shareholders' rights attorneys following the news of the Airgas litigation noted that Air Products is planning to move on. Air Products management is concerned that the Airgas board is not willing to sell the company at any price, and that the poison pill plan is simply a way to maintain the status quo.

Air Products plans to sell its shares of Airgas.

Source: Reuters "Airgas verdict revives poison pills" 2/16/2011