DEFA14A: Air Products Board Urges Shareholders to Reject Mantle Ridge's Short-Sighted Campaign

Air Products' board of directors issued a letter to shareholders highlighting the company's success and urging them to vote for only Air Products' nominees on the white proxy card, while criticizing Mantle Ridge's campaign.

Summary

• Air Products' board is urging shareholders to vote for their nominees at the upcoming 2025 Annual Meeting, scheduled for January 23, 2025.
• The board criticizes Mantle Ridge's campaign as disruptive and lacking a concrete long-term plan.
• Air Products highlights its strong core industrial gas business, which drives an industry-leading adjusted EBITDA margin of over 40%.
• The company is also focusing on the clean hydrogen market, which is expected to be worth over $600 billion by 2030 and over $1 trillion by 2050.
• Air Products has a history of 42 consecutive years of dividend increases, with approximately $1.6 billion in dividend payments in fiscal year 2024.
• The company is taking a prudent approach to capital allocation, not making final investment decisions on new low-carbon projects until current projects are 75% contracted.
• Mantle Ridge's past activist campaigns at CSX, Dollar Tree, and Aramark have resulted in significant underperformance compared to the S&P 500.
• Mantle Ridge initially proposed a full slate of directors but has since reduced the number of nominees, while still seeking control of the board and management.
• Air Products' board believes Mantle Ridge's nominees would not bring any additive skills and would disrupt the company's strategy.

Sentiment

Score: 4

Explanation: The document is primarily defensive, highlighting the company's strengths while strongly criticizing the activist investor's campaign. The negative tone and the potential for disruption from the proxy fight lower the sentiment score.

Positives

• Air Products has a strong core industrial gas business with an industry-leading adjusted EBITDA margin.
• The company is well-positioned to capitalize on the growing clean hydrogen market.
• Air Products has a long history of dividend increases and a commitment to returning capital to shareholders.
• The company is taking a prudent approach to capital allocation and risk management.
• Air Products has a strong track record in large project execution.

Negatives

• Mantle Ridge's activist campaign is seen as disruptive and lacking a concrete long-term plan.
• Mantle Ridge's past campaigns have resulted in significant underperformance at other companies.
• Mantle Ridge's proposed CEO candidate has no public company CEO or board experience and has not been active as an executive for almost four years.
• Mantle Ridge's proposed Executive Chairman candidate has not served in an operating role in over 17 years or on a board of directors in over five years.
• Mantle Ridge's nominees are seen as potentially loyal to Mr. Hilal rather than independent.

Risks

• The potential disruption caused by Mantle Ridge's campaign could negatively impact Air Products' strategy and operations.
• Mantle Ridge's proposed leadership changes could destabilize the company and hinder its progress.
• The clean hydrogen market is still developing, and there are risks associated with large-scale investments in this area.
• The company's future performance is subject to various market and economic factors.

Future Outlook

Air Products expects to increase its return of capital to shareholders, including through dividend increases and share repurchases, as capital expenditure moderates. The company is focused on growing its core industrial gas business and capitalizing on the clean hydrogen market.

Management Comments

• The Air Products Board believes it would be highly disruptive to the successful execution of its strategy to elect any of Mantle Ridges nominees.
• The Board strongly believes that it is NOT in the best interests of its shareholders to support Mantle Ridges nominees.
• Mantle Ridge continues to seek control of our Company by targeting the leadership of our Board and management, including Mr. Ghasemi and Mr. Monser, two leaders integral to the success of our strategy.

Industry Context

This announcement reflects a growing trend of activist investors challenging established companies. The focus on clean hydrogen aligns with the global push for decarbonization and renewable energy sources. The industrial gas sector is seeing increased competition and strategic shifts towards sustainable solutions.

Comparison to Industry Standards

• Air Products' adjusted EBITDA margin of over 40% is considered industry-leading, suggesting strong profitability compared to peers like Linde and Air Liquide.
• The company's focus on long-term take-or-pay contracts with minimum volume commitments is a common practice in the industrial gas sector, providing stable cash flows.
• Air Products' investment in clean hydrogen projects is a strategic move to capitalize on the growing demand for sustainable energy, similar to other companies in the sector.
• Mantle Ridge's past performance at CSX, Dollar Tree, and Aramark is significantly worse than the S&P 500, indicating a potential risk to Air Products' shareholders if they gain control.

Stakeholder Impact

• Shareholders are urged to vote for the company's nominees to protect their investment.
• Employees may be impacted by the potential changes in leadership and strategy.
• Customers and suppliers may be affected by any disruptions to the company's operations.

Next Steps

• Shareholders are urged to vote for Air Products' nominees on the white proxy card at the 2025 Annual Meeting.
• The company will continue to execute its strategy and focus on growing its core industrial gas business and clean hydrogen market.
• Air Products will continue to engage with shareholders and provide updates on its progress.

Key Dates

Keywords

Air Products, Mantle Ridge, proxy fight, activist investor, board of directors, clean hydrogen, industrial gases, EBITDA margin, dividend, capital allocation