DEFA14A: Air Products Defends Strategy Against Mantle Ridge, Highlights $44 Billion Shareholder Value Creation

Air Products is urging shareholders to vote for its nominees at the upcoming 2025 Annual Meeting, emphasizing its successful two-pillar growth strategy and criticizing Mantle Ridge's proposed changes.

Summary

• Air Products is actively defending its current strategy and board against an activist investor, Mantle Ridge, ahead of the 2025 Annual Meeting of Shareholders.
• The company emphasizes its successful two-pillar growth strategy, focusing on the core industrial gas business and expanding into the clean hydrogen market.
• Air Products highlights that under CEO Seifi Ghasemi's leadership since 2014, the company has created over $44 billion in shareholder value, with a ~9% CAGR in dividend per share over the past 10 years.
• The company's adjusted EBITDA margin has expanded by +1,400 bps, and adjusted EPS has grown at a ~11% CAGR since fiscal year 2014.
• Air Products is investing heavily in clean hydrogen, projecting the market to be worth over $600 billion by 2030 and exceeding $1 trillion by 2050.
• The company expects to generate positive net cash starting in FY2027 from its clean hydrogen projects.
• Air Products criticizes Mantle Ridge's nominees, raising concerns about their qualifications, potential conflicts of interest, and a lack of relevant experience.
• The company highlights issues with Mantle Ridge's proposed executive chairman candidate, citing media reports and court filings related to alleged leaks of confidential information.
• Air Products' board is conducting a thorough search for a President to serve as a qualified CEO successor, with an announcement expected no later than March 31, 2025.

Sentiment

Score: 6

Explanation: The document is primarily defensive, aimed at countering an activist investor. While it highlights positive historical performance, it also acknowledges challenges and risks associated with the company's future strategy. The negative sentiment surrounding the activist investor's campaign tempers the overall positive tone.

Positives

• Air Products has a strong track record of creating shareholder value and growing its core industrial gas business.
• The company is well-positioned to capitalize on the growing clean hydrogen market.
• Air Products has a disciplined approach to capital allocation and risk management.
• The board is committed to regular refreshment and has nominated highly qualified independent directors.
• The company is taking steps to ensure disciplined capital investment in its clean hydrogen strategy.
• Air Products has a history of increasing its price-cost spread through favorable contract modifications.
• The company's on-site core capabilities model is driving resilience through a balanced mix of on-site and merchant sales.

Negatives

• The company is facing a proxy contest from an activist investor, Mantle Ridge, which could disrupt its current strategy.
• Mantle Ridge's proposed executive chairman candidate has been linked to alleged leaks of confidential information.
• Mantle Ridge's proposed CEO candidate lacks public company CEO or board experience.
• The company is investing significant capital in clean hydrogen, which is being discounted by the street.
• The company is currently pre-revenue for future value creation, which is masking the strength of the business trajectory.

Risks

• The proxy contest with Mantle Ridge could lead to changes in the company's strategy and leadership.
• The company's investments in clean hydrogen may not generate the expected returns.
• The company's future performance and financial results may differ materially from projections and estimates.
• The company's success depends on its ability to secure anchor customers and offtake agreements for its clean hydrogen projects.
• The company's success depends on its ability to obtain necessary permits for its projects.

Future Outlook

Air Products expects to generate positive net cash starting in FY2027 and is focused on delivering on the onstream dates outlined for its clean hydrogen projects.

Management Comments

• Under the supervision of our Board, management is executing a long-term strategy to grow our core industrial gas business, while leveraging decades of relevant expertise to capitalize on our important first-mover position in the clean hydrogen market to deliver maximized value for our shareholders.
• We remain focused on investing in, and growing, our core industrial gas business, which delivers industry-leading profitability based on adjusted EBITDA margin, while advancing our first-mover advantage in the clean hydrogen market.

Industry Context

The announcement highlights the increasing importance of clean hydrogen in the industrial gases sector, driven by global decarbonization efforts and regulations. Air Products is positioning itself as a leader in this market, competing with companies like Air Liquide, Linde, and Nippon Sanso.

Comparison to Industry Standards

• Air Products claims to be the most profitable industrial gas business in the world based on adjusted EBITDA margin.
• Air Products' sales have grown at a ~4% CAGR since FY2014, higher than its public peers (Air Liquide, Linde, and Nippon Sanso).
• Air Products is more heavily weighted toward the stable, infrastructure-like on-site business model than its peers.
• Air Products has executed more than 250 hydrogen fueling stations projects in 20 countries globally, relative to each of Air Liquide's and Linde's 200 hydrogen fueling stations.

Stakeholder Impact

• Shareholders are directly impacted by the proxy contest and the company's strategic direction.
• Employees are affected by the potential changes in leadership and strategy.
• Customers benefit from the company's investments in clean hydrogen and its commitment to improving efficiency and reducing emissions.
• Suppliers and creditors are impacted by the company's capital allocation decisions and its ability to generate positive net cash flow.

Next Steps

• Shareholders are urged to vote for Air Products' nominees on the WHITE proxy card.
• The Board will announce a new President and related timeline for CEO succession no later than March 31, 2025.
• The company will continue to execute its two-pillar growth strategy and secure offtake agreements for its clean hydrogen projects.

Key Dates

Keywords

Air Products, Mantle Ridge, Clean Hydrogen, Shareholder Value, Proxy Contest, Board of Directors, Industrial Gases, CEO Succession, EBITDA, EPS