Finance

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Just when Bill Ackman was about to have a good day, the rain found him. 

Air Products agreed Friday morning to sell its materials and coating-additives units to German chemical maker Evonik Industries for $3.8 billion. Ackman's Pershing Square Capital Management owns a 3.5 percent activist stake in Air Products, whose shares climbed on news of the deal.

But for Ackman, it was a short-lived Happy Friday. Shares of Herbalife, a controversial seller of nutrition products that he's spent lots of money betting against, also soared. Herbalife said it's now in late-stage talks to resolve a long Federal Trade Commission probe into whether it's a pyramid scheme, as Ackman contends. "This is the highest conviction I've ever had about any investment I've ever made," he said in a Bloomberg Television interview back in 2012 when he made a $1 billion short bet. If the company settles, with a slap-on-the-wrist payment (Herbalife estimates $200 million), it will pretty much have defeated the hedge fund manager.

Any other investor with Ackman's recent track record might have their tail between their legs by now, but that's not quite his style. As alarming issues at Valeant Pharmaceuticals were raised and the stock dove almost 90 percent since last summer, Ackman only got louder in declaring his bullishness and even joined the beleaguered drugmaker's board to help turn things around. That said, after key holdings including Valeant dragged his fund to its worst annual performance ever last year, with a net loss of 20.5 percent, he talked of humility and recognizing "when you are wrong." 

Downtime
Ackman said he made some "important mistakes" in 2015. Some key long holdings continue to decline, while his short bet against Herbalife has come back to bite him this week. Air Products is a bright spot.
Source: Bloomberg

He's still the largest holder of Platform Specialty Products, with an almost 19 percent stake, and that stock is down 30 percent this year. And Valeant continues to slide. However, Canadian Pacific, of which Pershing Square is the second-largest shareholder, is up about 10 percent, as it recovers from a failed attempt to acquire railroad rival Norfolk Southern. The company has instead turned to share buybacks

Air Products is also a bright spot, especially with Friday's transaction involving Evonik. The move is yet another step toward the strategy Ackman has been pushing at the $31 billion gas producer since he took his stake almost three years ago, which is to improve the profitability of its non-gas units or exit them. Air Products had brought in a new CEO and chairman, Seifi Ghasemi, in 2014 to assuage the activist investor. Ghasemi is seen as a shareholder-friendly executive after having led the restructuring and breakup of lithium producer Rockwood Holdings, which was sold to Albemarle shortly after his departure, rounding out a lucrative few years for Rockwood shareholders.

Pumped Up
Air Products was an underperforming stock before Ackman came along in 2013. The gas producer has since replaced its CEO, reorganized its divisions and is now shedding some non-core assets.
Source: Bloomberg

Bloomberg News reports that because the operations Air Products is shedding were part of a division potentially headed for a tax-free spinoff, the price Evonik is paying compensates for the tax hit that comes from a direct sale instead (it implies a somewhat rich multiple of 15.2 times earnings). The idea is that as Air Products strengthens its balance sheet with help from the cash this move generates, the company can seize opportunities to strengthen its main industrial-gases business. The chemicals and gas industries have already been consolidating, most notably the $13 billion merger of Air Product's peers, Air Liquide and Airgas announced in November. Analysts currently see about 8 percent upside to Air Products' stock this year. 

Needless to say, with his new role at Valeant, Ackman has his hands full. It does make you wonder, though, what he's working on next. After all, it was only two years ago that Bloomberg Markets magazine ranked Pershing Square the world's top hedge fund

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net