DEFC14A: Air Products Faces Proxy Battle as Mantle Ridge Nominates Rival Slate of Directors

Air Products is urging shareholders to vote for its nine director nominees and against a shareholder proposal from Mantle Ridge LP, which is seeking to replace the board.

Summary

• Air Products is holding its 2025 Annual Meeting of Shareholders on January 23, 2025, where shareholders will vote on the election of directors and other proposals.
• Mantle Ridge LP has nominated nine candidates to stand for election as directors in opposition to the board's nominees and has also proposed a bylaw amendment.
• The Air Products board is recommending shareholders vote for its nine nominees: Tonit M. Calaway, Charles (Casey) Cogut, Lisa A. Davis, Seifollah (Seifi) Ghasemi, Jessica Trocchi Graziano, Edward L. Monser, Bhavesh V. (Bob) Patel, Wayne T. Smith and Alfred Stern.
• The board is also recommending shareholders vote against the bylaw proposal from Mantle Ridge.
• Air Products achieved diluted earnings per share of $17.24, a 67% increase over the prior fiscal year, and adjusted earnings per share of $12.43, an 8% increase over the prior fiscal year.
• The company returned approximately $1.6 billion to shareholders in the form of dividends during the year.
• Air Products completed the sale of its liquefied natural gas process technology and equipment business for $1.81 billion in cash.
• The company signed a 15-year agreement to supply 70,000 tons of green hydrogen annually to TotalEnergies starting in 2030.
• Air Products is also building networks of hydrogen refueling stations for heavy-duty vehicles.
• The company has improved employee lost-time injuries by 75% and recordable injuries by 57% since 2014.
• Air Products plans to quadruple the amount of renewable energy used to make its products by 2030.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company reports strong financial results and progress in strategic initiatives, the proxy battle with Mantle Ridge and shareholder concerns about executive compensation introduce significant uncertainty and potential risks. The company's proactive approach to sustainability and succession planning is positive, but the overall tone is cautious due to the ongoing conflict.

Positives

• The company achieved strong financial results with significant increases in both diluted and adjusted earnings per share.
• Air Products has demonstrated a commitment to returning capital to shareholders through consistent dividend increases.
• The sale of the LNG business for $1.81 billion in cash strengthens the company's balance sheet.
• The agreement to supply green hydrogen to TotalEnergies highlights the company's leadership in clean energy.
• Air Products is making significant progress in safety and sustainability initiatives.
• The board is actively engaged in succession planning and board refreshment.

Negatives

• Mantle Ridge LP is seeking to replace the entire board with its own nominees, creating a proxy battle.
• The company's say-on-pay proposal received lower than usual support at the 2024 Annual Meeting, indicating shareholder concerns about executive compensation.
• The company is facing pressure from D.E. Shaw and Mantle Ridge to limit capital expenditures and accelerate off-take agreements.

Risks

• The proxy battle with Mantle Ridge could lead to significant changes in the company's strategy and management.
• The company faces the risk of not meeting its sustainability goals.
• There is a risk that the company may not be able to secure additional off-take agreements for its clean hydrogen projects.
• The company's capital allocation strategy is under scrutiny from activist investors.
• The company's CEO succession plan is still in progress, creating uncertainty.

Future Outlook

Air Products is committed to running and growing its core business while pursuing strategic, high-growth and high-return opportunities in clean hydrogen. The company anticipates announcing a new President who would be the intended successor as CEO, in the first half of fiscal year 2025.

Management Comments

• Seifi Ghasemi stated that Air Products' core industrial gases business continues to achieve industry-leading profitability.
• Ghasemi also noted that Air Products is acting as a first-mover to deliver clean hydrogen at scale.
• Ghasemi emphasized the company's commitment to a disciplined capital allocation strategy.
• Ghasemi stated that the company is working tirelessly to ensure a safe work environment for employees and contractors.
• Ghasemi noted that the company has strengthened its sustainability goals, including updating the baseline year for its carbon intensity goals.
• Ghasemi stated that the company is bringing in a fully qualified CEO successor as President and a member of the Board.

Industry Context

Air Products is positioning itself as a leader in the clean hydrogen market, which is a growing trend in the energy sector. The company's focus on sustainability and energy transition projects aligns with broader industry trends and global efforts to reduce carbon emissions. The proxy battle highlights the increasing pressure on companies to adapt to changing market conditions and investor demands.

Comparison to Industry Standards

• Air Products claims to be the most profitable industrial gases company based on adjusted EBITDA margin, suggesting it is outperforming its peers in this metric.
• The company's focus on clean hydrogen projects positions it as a first-mover in a rapidly growing market, potentially giving it a competitive advantage over companies that are slower to adopt this technology.
• The company's commitment to sustainability goals, such as reducing carbon intensity and increasing renewable energy use, aligns with global benchmarks and investor expectations.
• The company's executive compensation program is benchmarked against a peer group of industrial companies, suggesting that its pay practices are competitive with industry standards.
• The company's safety performance, with a 75% improvement in employee lost-time injuries and a 57% improvement in employee recordable injuries since 2014, indicates a strong focus on safety compared to industry averages.

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders are impacted by the proxy battle and the potential changes in the board and company strategy.
• Employees are impacted by the company's focus on safety and sustainability, as well as the ongoing CEO succession planning.
• Customers are impacted by the company's focus on clean hydrogen and other sustainable solutions.
• Suppliers are impacted by the company's commitment to sustainability and its capital allocation strategy.
• Creditors are impacted by the company's financial performance and its debt agreements.

Next Steps

• Shareholders are urged to vote on the WHITE proxy card or WHITE voting instruction form.
• The company will hold its 2025 Annual Meeting of Shareholders on January 23, 2025.
• The company will continue its search for a CEO successor as President and a member of the board.
• The company will continue to execute its two-pillar growth strategy.
• The company will continue to engage with shareholders on various topics.

Key Dates

Keywords

proxy battle, green hydrogen, executive compensation, board of directors, sustainability, capital allocation, earnings per share, Mantle Ridge, shareholder proposal, clean energy