DEFC14A: Activist Investor Mantle Ridge Nominates Four Directors to Air Products' Board, Seeks CEO Replacement

Mantle Ridge LP, a significant shareholder in Air Products and Chemicals, Inc., has nominated four directors for election to the company's board, citing governance failures and underperformance as reasons for seeking a reconstituted board and a new CEO.

Summary

• Mantle Ridge LP, owning approximately 1.8% of Air Products' outstanding shares, is seeking significant changes at the company.
• They have nominated four individuals: Andrew Evans, Paul Hilal, Tracy McKibben, and Dennis Reilley, for election to the board of directors at the 2025 Annual Meeting.
• Mantle Ridge believes that the current board's governance failures have led to mismanagement and underperformance compared to competitors.
• They are advocating for a reconstituted board to conduct a search for a new CEO, suggesting Eduardo Menezes and other suitable candidates should be considered.
• The 2025 Annual Meeting is scheduled for January 23, 2025.
• Mantle Ridge is also proposing a bylaw amendment to repeal any board-adopted bylaws after September 17, 2023.
• As of the Record Date (November 27, 2024), there are 222,383,500 shares of Common Stock outstanding.
• Mantle Ridge has engaged in discussions with the board since October 2024 but reports that the board has been unwilling to engage in a collaborative process.
• Mantle Ridge has also had discussions with another activist investor, D.E. Shaw & Co., which has dropped its own board challenge and is supporting Mantle Ridge's efforts.

Sentiment

Score: 3

Explanation: The document expresses a negative view of the company's current performance and governance, highlighting underperformance, mismanagement, and resistance to engaging with shareholders. However, it also presents a hopeful outlook for potential improvement under a reconstituted board and new leadership.

Positives

• Mantle Ridge's nominees possess extensive experience in the industrial gas industry, finance, and corporate governance.
• The nominees are committed to acting independently and in the best interests of all shareholders.
• A successful proxy contest could lead to improved corporate governance and a more effective board.
• Potential for a new CEO with a strong track record to enhance company performance.
• D.E. Shaw & Co. has publicly supported Mantle Ridge's efforts.
• Mantle Ridge is committed to a long-term investment in the company and aims to create sustainable value.

Negatives

• The current board has refused to engage constructively with Mantle Ridge, indicating a potential for a protracted and contentious proxy fight.
• The company has underperformed its peers and its potential under the current board's leadership.
• There are concerns about the company's strategy, capital allocation, and succession planning.
• The board's dysfunction may be hindering the company's ability to address critical issues.
• The current CEO, Seifollah Ghasemi, is 80 years old, raising concerns about succession planning.
• The board advanced a false narrative that Mantle Ridge is seeking control of the board.

Risks

• The proxy contest may be unsuccessful, leaving the current board and management in place.
• The proxy fight could be costly and distracting for the company.
• Uncertainty surrounding the company's leadership and strategic direction.
• Potential for further underperformance if changes are not implemented.
• The board may adopt defensive measures to entrench themselves.
• The company may face challenges in attracting and retaining talent during a period of uncertainty.

Future Outlook

The document does not explicitly provide financial guidance or forward-looking statements regarding the company's financial performance. However, it does suggest that Mantle Ridge believes the company is underperforming and that changes in leadership and strategy could lead to improved financial results.

Management Comments

• Mr. Monser (October 14, 2024): 'Our Board has met to consider the information you provided and requests you have made, including in the meeting last week with four of our directors and you and your colleagues. I have been authorized by the Board to advise you that we do not believe it would be productive to engage further with you at this time.'
• Mr. Monser (November 5, 2024): 'Thank you for your November 3rd letter. Our Board has a previously scheduled meeting this Sunday, November 10, at which we will give full consideration to your request for another meeting. We will be in touch with you after our meeting.'
• Mr. Monser (November 11, 2024): 'Thank you again for your letter, dated November 3. As I previewed in my last letter to you, the Board discussed earlier today your request for another meeting with directors. After full consideration, we do not believe it would be productive to meet again at this time.'

Industry Context

This proxy fight is occurring within the broader context of the industrial gases industry, where companies are facing challenges related to capital allocation, sustainability, and competition. Activist investors have been increasingly targeting companies in this sector, seeking to improve performance and unlock shareholder value.

Comparison to Industry Standards

• The document states that Air Products has underperformed its competitors, but does not provide specific comparisons.
• In the first five years of Mr. Ghasemis tenure as CEO, Air Products generated a total shareholder return of 117%, compared to Linde at 72% and Air Liquide at 29%.
• It is implied that Air Products' current corporate governance practices are not in line with best practices, particularly regarding the separation of Chairman and CEO roles.
• Mr. Reilley's tenure at Praxair, Inc. was highlighted, where he achieved best-in-class total shareholder returns, revenue growth, EBIT growth, EBIT margins, and returns on invested capital.

Corporate Governance

Stakeholder Impact

• Shareholders: Potential for increased shareholder value if Mantle Ridge's proposals are successful.
• Employees: Potential changes in management and strategy could impact employees.
• Customers: Changes in company strategy and operations could affect customer relationships.
• Suppliers: Changes in company strategy and operations could affect supplier relationships.
• Creditors: Changes in company strategy and operations could affect creditor relationships.

Next Steps

• Mantle Ridge will continue to publicly share its views on the changes needed at the company.
• Mantle Ridge urges independent directors to engage with shareholders and sell-side analysts without management present.
• The 2025 Annual Meeting will be held on January 23, 2025, where shareholders will vote on the proposed directors and other proposals.

Key Dates

Keywords

Air Products and Chemicals, Proxy Fight, Activist Investor, Mantle Ridge, Corporate Governance, Board of Directors, CEO Succession, Industrial Gases, Capital Allocation, Shareholder Value, D.E. Shaw, Annual Meeting, Proxy Solicitation, Underperformance, Bylaw Amendment