DEFA14A: Air Products Defends Strategy Against Mantle Ridge's Proxy Challenge Ahead of 2025 Annual Meeting

Air Products refutes Mantle Ridge's claims regarding board nominees, succession planning, business strategy, and financial performance in a letter to shareholders before the 2025 Annual Meeting.

Summary

• Air Products is actively defending its business strategy and board nominees against claims made by Mantle Ridge leading up to the 2025 Annual Meeting of Shareholders.
• The company asserts that Mantle Ridge is attempting to mislead shareholders with false and out-of-context information.
• Air Products defends the qualifications of its board nominees, stating they have superior and more recent experience in industrial gases and chemicals compared to Mantle Ridge's nominees.
• The company addresses concerns about CEO succession planning, stating a plan is underway with an announcement expected no later than March 31, 2025.
• Air Products defends its clean hydrogen strategy, highlighting long-term offtake agreements and rejecting projects that do not meet return thresholds.
• The company refutes claims of below-peer profitability, stating its FY2024 Adjusted EBITDA margin was 41.7%, higher than Linde's disclosed margin of 38.2%.
• Air Products also addresses concerns about Return on Invested Capital (ROIC), stating that Mantle Ridge's calculations are based on extrapolations and not substantiated by company data.
• The company addresses allegations regarding a 2021 arbitration panel finding against a company previously led by Mr. Ghasemi, stating that Mantle Ridge is distorting a commercial dispute.
• Air Products urges shareholders to vote for only Air Products nominees on the WHITE proxy card.

Sentiment

Score: 5

Explanation: The document is largely defensive, responding to criticisms from an activist investor. While Air Products presents a confident front, the need to address these challenges suggests underlying concerns. The sentiment is neutral, reflecting a company in the midst of a contested situation.

Positives

• Air Products highlights its first-mover advantage in the clean hydrogen market.
• The company emphasizes its commitment to long-term, take-or-pay agreements with high-quality customers for its clean hydrogen projects.
• Air Products states its FY2024 Adjusted EBITDA margin was 41.7%, higher than Linde's disclosed margin of 38.2%.
• The company has grown at a 4% compound annual growth rate from FY2014 to FY2024.
• Air Products is actively engaged with shareholders and open to feedback.

Negatives

• Mantle Ridge is actively challenging Air Products' strategy and board composition.
• The proxy contest has stalled progress on the CEO succession plan.
• Mantle Ridge questions the qualifications of Air Products' board nominees.
• Mantle Ridge alleges below-peer profitability and ROIC for Air Products.
• Mantle Ridge raises concerns about a past commercial dispute involving Mr. Ghasemi.

Risks

• The outcome of the proxy contest could lead to a change in board composition and strategic direction.
• Failure to secure long-term offtake agreements for clean hydrogen projects could impact profitability.
• Delays in the CEO succession plan could create uncertainty.
• Negative publicity from the proxy contest could damage Air Products' reputation.
• Mantle Ridge alleges that Dennis Reilley leaked confidential board information from three separate public companies, to a neighbor, including information regarding a merger transaction before it was publicly announced.

Future Outlook

Air Products aims to deliver long-term, sustainable value for shareholders by growing its core industrial gas business and capitalizing on its first-mover advantage in clean hydrogen. The company expects its clean hydrogen projects to deliver returns at or above its core industrial gas return levels.

Management Comments

• We strongly disagree with Glass Lewis sloppily compiled view.
• Mantle Ridge has not put forward a plan to create long-term shareholder value.
• Their nominees would create a destabilizing amount of change for the Company, and remove significant and relevant expertise from our Board, derail the meaningful progress Air Products has made as a first mover and leader in the clean hydrogen industry, and threaten our future performance.
• We are hard at work executing on our strategy to deliver long-term, sustainable value for shareholders by growing our core industrial gas business, while capitalizing upon our first-mover advantage in clean hydrogen.
• Mantle Ridge is seeking to mislead shareholders to achieve its self-interested, short-term goals.
• We believe following Glass Lewis would be value destructive for shareholders.

Industry Context

The announcement occurs within the context of increasing investor activism and a growing focus on clean energy, particularly hydrogen. Air Products is positioning itself as a leader in the clean hydrogen market, while facing challenges from activist investors like Mantle Ridge who question the company's strategy and performance.

Comparison to Industry Standards

• Air Products compares its Adjusted EBITDA margin of 41.7% to Linde's disclosed margin of 38.2%.
• Air Products Adjusted Operating margin of 24.4% trails Linde (28.8%) but is higher than Air Liquide (19.2%) and Nippon Sanso (13.1%).
• Air Products has grown at a 4% compound annual growth rate from FY2014 to FY2024, while the closest peer has a 2% long-term organic sales compound annual growth rate.
• The company references TotalEnergies, a major energy company with a $126 billion market capitalization and A+/Aa3 investment grade credit ratings, as a key offtake partner.
• Imperial Oil, Canada's largest petroleum refiner majority-owned by ExxonMobil, is also mentioned as a long-term contract partner.

Stakeholder Impact

• The outcome of the proxy contest will impact shareholders through potential changes in board composition and strategic direction.
• Employees may be affected by changes in leadership and strategy.
• Customers and suppliers could be impacted by shifts in Air Products' business priorities.
• The company's clean hydrogen strategy has implications for the environment and the transition to lowand zero-carbon energy.

Next Steps

• Shareholders will vote on the election of directors at the 2025 Annual Meeting.
• Air Products will continue to execute its strategy and engage with shareholders.
• The company anticipates announcing a new President and related timeline for CEO succession no later than March 31, 2025.
• Air Products will continue to negotiate offtake agreements for its clean hydrogen projects.

Key Dates

Keywords

Air Products, Mantle Ridge, Proxy Contest, Board Nominees, CEO Succession, Clean Hydrogen, EBITDA Margin, ROIC, Shareholders, Annual Meeting