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Holly LaFon
Holly LaFon
Articles (9279)  | Author's Website |

Bill Ackman Comments on Air Products

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November 16, 2017 | About:
We recently sold our remaining shares of Air Products (NYSE:APD) (“APD”), concluding a highly successful activist investment. During our four-and-half-year investment, APD delivered a 104.7% total shareholder return. In comparison, the S&P 500 returned 69.9% over the same period.

Prior to our investment, APD had slipped from an industry leader to a laggard. While APD participated in a good industry and had produced positive shareholder returns over time, its performance was substantially inferior to its peers and its potential. APD’s margins of 15% trailed direct competitor Praxair’s 23% margins. Furthermore, APD’s operational inefficiency led to subpar growth. The company also owned several non-core specialty materials businesses, and had a history of poor capital allocation.

APD’s underperformance was purportedly due to myriad reasons detailed by the prior management team and accepted by the analyst community. Our extensive due diligence revealed that with a proper transformation, APD could achieve meaningfully higher margins and growth.

We built our position in APD during the summer of 2013 and announced our investment in late July. We then engaged with the board of APD, which carefully and constructively evaluated the opportunities for improvement we had identified. Within two months of announcing our investment, we reached an agreement with APD to add three directors to the board, including two Pershing Square nominees and one mutually agreed upon director.

APD’s former CEO and board concluded that a change in leadership was necessary to effectuate the necessary transformation of the business. The board then launched a search process for a new CEO and we were provided full transparency on the process with the ability to assess candidates. After a nine-month search, APD’s board selected one of our director nominees, Seifi Ghasemi, to serve as its CEO.

Within months of taking over as CEO, Seifi announced his goal to make APD the most profitable industrial gas company in the world by restructuring the organization, transforming the culture, focusing on the company’s core industrial gas business, and implementing a more disciplined approach to capital allocation. The results that Seifi and his team have delivered have been remarkable, and have exceeded the conservative estimates we put forth at the time of our investment. Air Products is now the most profitable company in the industrial gas industry, with an operating margin of 22%. The company has executed spinoff and sale transactions for its non-core materials businesses, generating substantial cash proceeds and leverage capacity which is being deployed into high-return, core industrial gas assets. As a result of these improvements, APD has delivered double-digit EPS growth for three consecutive years despite foreign exchange headwinds.

Air Products’ board deserves enormous credit for engaging constructively and helping the company deliver on its potential. CEO Seifi Ghasemi and his team, including Industrial Gases Executive Vice President Corning Painter and CFO Scott Crocco, who were both at APD under prior leadership, have done a superb job transforming APD for the benefit of all stakeholders.

From Bill Ackman (Trades, Portfolio)'s third quarter 2017 shareholder letter.

About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

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