DEFA14A: Air Products Faces Proxy Fight as Mantle Ridge Withdraws Some Director Nominees

Air Products is urging shareholders to vote for its director nominees after Mantle Ridge LP withdrew five of its nine proposed candidates for the board.

Summary

• Air Products is engaged in a proxy contest with Mantle Ridge LP, who initially sought to replace the majority of the board.
• Mantle Ridge has withdrawn five of its nine director nominees, reducing their slate to four.
• Air Products is recommending shareholders vote for its nine director nominees on the WHITE proxy card.
• The company highlights its strong performance, including industry-leading adjusted EBITDA margins and growth in adjusted EPS.
• Air Products emphasizes its first-mover advantage in clean hydrogen, with a market opportunity expected to exceed $1 trillion by 2050.
• The company has a 15-year agreement to supply 70,000 tons of clean hydrogen to TotalEnergies starting in 2030.
• Air Products has a track record of returning capital to shareholders, including over 40 consecutive years of dividend increases, with $1.6 billion in dividend payments in fiscal year 2024.
• The company is conducting a search for a new President, with a CEO succession plan expected to be announced by March 31, 2025.
• Air Products believes Mantle Ridge's nominees do not offer an increase in expertise or experience to the company's business.
• The company is urging shareholders to discard any blue proxy cards from Mantle Ridge and vote using the WHITE proxy card.

Sentiment

Score: 5

Explanation: The document presents a mixed sentiment. While the company highlights its strong performance and future opportunities, the proxy fight and the potential for disruption from Mantle Ridge's actions create uncertainty. The withdrawal of some nominees is a positive, but the underlying conflict remains.

Positives

• Air Products is the most profitable industrial gas business in the world based on adjusted EBITDA margin.
• The company's core industrial gas business is producing industry-leading adjusted EBITDA margins.
• Air Products has a first-mover advantage in the clean hydrogen market, which is expected to be worth over $1 trillion by 2050.
• The company has secured a significant 15-year clean hydrogen off-take contract with TotalEnergies.
• Air Products has a strong track record of returning capital to shareholders through consistent dividend increases.
• The company is actively managing its leadership succession with a plan to announce a new President and CEO succession timeline by March 31, 2025.

Negatives

• Mantle Ridge's attempt to gain control of the board is seen as a threat to the company's long-term strategy.
• Mantle Ridge's desire to terminate the current CEO is viewed as unreasonable given the company's performance.
• The board believes Mantle Ridge's nominees do not offer an increase in expertise or experience to Air Products' business.
• Mantle Ridge's nominees have served as nominees for other activists in prior proxy contests, raising concerns about their commitment to long-term value.

Risks

• Mantle Ridge's attempt to seize control of the board could disrupt the company's growth strategy.
• The proxy contest could create uncertainty and potentially impact the company's operations.
• There is a risk that Mantle Ridge's short-term agenda could jeopardize long-term shareholder value.
• The company's future performance is dependent on the successful execution of its clean hydrogen strategy.

Future Outlook

Air Products expects to increase its return of capital to shareholders as capital expenditure moderates, including through dividend increases and share repurchases. The company also anticipates delivering returns at or above traditional industrial gas business levels across its clean hydrogen projects.

Management Comments

• We look forward to sharing a more comprehensive detailing of why we believe Mantle Ridges short-term agenda to seize control of the Companys leadership and curtail or eliminate our growth strategy would be destructive to shareholder value.
• Dont jeopardize the value of your Air Products investment. Vote for the election of all of the companys nine nominees on the WHITE proxy card.
• We are successfully de-risking clean hydrogen projects.
• We expect that across our clean hydrogen projects we will deliver returns at or above traditional industrial gas business levels.
• We will not make any final investment decisions on new projects until our current facilities are at least 75% loaded with contracts.
• As our capital expenditure moderates, we expect to increase our return of capital to shareholders.
• The Board has already undertaken a comprehensive succession process that today is well underway.
• The Board is conducting a search to appoint a highly-qualified President, and we are on track to announce the President and related timelines for CEO succession no later than March 31, 2025.

Industry Context

The document highlights Air Products' position as a leader in the industrial gas sector, particularly in the emerging clean hydrogen market. The company's focus on securing long-term contracts and its strategic investments align with the broader industry trend towards sustainable energy solutions. The proxy fight with Mantle Ridge reflects a growing trend of activist investors seeking to influence corporate strategy and governance.

Comparison to Industry Standards

• Air Products claims to be the most profitable industrial gas business globally based on adjusted EBITDA margin, suggesting a leading position compared to competitors like Linde, Air Liquide, and Messer.
• The company's focus on clean hydrogen projects, such as the NEOM green hydrogen project and the Louisiana Clean Energy Complex, positions it as a first-mover in a rapidly growing market, potentially ahead of competitors who are still in the early stages of development.
• The 15-year agreement to supply 70,000 tons of clean hydrogen to TotalEnergies is a significant contract, demonstrating Air Products' ability to secure large-scale off-take agreements, which is a key factor in the success of hydrogen projects.
• The company's 40 consecutive years of dividend increases is a strong indicator of financial stability and commitment to shareholder returns, which is a benchmark for mature industrial companies.

Stakeholder Impact

• Shareholders are directly impacted by the proxy contest and the outcome of the vote on director nominees.
• Employees may be affected by potential changes in leadership and strategy.
• Customers and suppliers may experience uncertainty due to the ongoing proxy fight.
• Creditors may be impacted by any changes in the company's financial stability or strategy.

Next Steps

• Shareholders are urged to vote using the WHITE proxy card for Air Products' director nominees.
• The company will continue its search for a new President and announce a CEO succession plan by March 31, 2025.
• Air Products will continue to negotiate further off-take commitments for its clean hydrogen projects.

Key Dates

Keywords

proxy contest, director nominees, Mantle Ridge, clean hydrogen, EBITDA margin, shareholder value, corporate governance, board of directors, dividend, proxy card