Ackman Says Pershing Square Takes Stake in Air Products

Billionaire William Ackman’s Pershing Square Capital Management LP has amassed a 9.8 percent stake in Air Products & Chemicals Inc., signaling that he plans to push for change at the industrial-gas producer.

The hedge-fund firm’s stake in Allentown, Pennsylvania-based Air Products cost about $2.05 billion and is now valued at about $2.2 billion, Ackman, 47, said today in an e-mail. Air Products, which had a market value of $22.1 billion as of yesterday, is the previously unidentified target described by Ackman in a July 8 letter to clients.

The stake sets the stage for a clash between Ackman and Air Products, which instituted a shareholder-rights plan last week to prevent any one investor from gaining too much control. Pershing Square raised “more than we could spend” for the Air Products stake, Ackman said in a separate e-mail, citing limitations imposed by that rights plan.

Air Products rose 2.9 percent to $108.64 in New York. The shares have increased 29 percent this year.

“The company has lower margins than a lot of its peers,” James Sheehan, an analyst at SunTrust Robinson Humphrey who rates the shares buy, said in an interview today on Bloomberg Radio’s “Bloomberg Surveillance.” “He may push for them to divest some of their non-core businesses.”

Force Changes

Activist funds typically buy equity stakes in companies and try to force management to make changes that boost share prices and investor returns. Air Products has lower operating margins than Praxair Inc., its bigger U.S. competitor, and it has units that make chemicals and provide specialty gases to computer chip makers that Ackman may want sold, Sheehan said.

Air Products “looks forward to engaging with Pershing Square to understand its views,” the company said in a statement today. “Air Products will thoroughly review constructive input from shareholders as part of its commitment to increasing shareholder value.”

The company said in the statement it has taken steps to improve operations and boost shareholder value, including selling its European home-care unit, exiting a chemical business, expanding in South America and cutting costs by more than $150 million a year. Air Products said it hasn’t been contacted by anyone at Pershing Square.

Poison Pill

The company, led by Chairman and Chief Executive Officer John E. McGlade, adopted its poison-pill shareholder-rights plan on July 25, citing unusually high volumes of stock trading. The plan gives existing investors the right to acquire deeply discounted new shares should another person or group acquire 10 percent of the company without board approval, Air Products said at the time. Such plans dilute the stake of a hostile acquirer, making a takeover difficult.

Air Products employs 20,000 people and is the world’s largest supplier of hydrogen and helium. It delivers gases by truck and by pipelines, providing oil refiners with hydrogen used to make low-sulfur fuels and steelmakers with oxygen used to make furnaces burn more efficiently.

The company’s own hostile bid for Airgas Inc. was thwarted by a poison-pill defense in February 2011. Air Products dropped its $5.9 billion bid after the Delaware Chancery Court rejected a challenge to Airgas’s poison-pill.

Air Products hired as an adviser Doug Braunstein, JPMorgan Chase & Co.’s vice chairman and former chief financial officer, according to a person familiar with the situation who asked not to be named because the information hasn’t been made public. It also hired Jim Woolery, deputy chairman at Cadwalader, Wickersham & Taft LLP and formerly JPMorgan’s co-head of North American mergers and acquisitions, the person said. The pair previously advised Air Products on its Airgas bid, when Woolery was at Cravath, Swaine & Moore LLP.

Detailed Research

Pershing Square began purchasing Air Products shares May 22, a person familiar with the firm’s trading said. Ackman was fundraising for then-unidentified target Air Products as his high-profile bets on J.C. Penney Co. and against Herbalife Ltd. lost money. He was seeking to raise as much as $1 billion this month for the investment, on top of a stake held by his New York-based firm’s main hedge funds, according to the letter. He didn’t say how much was raised.

Ackman first disclosed his interest in the company in an interview reported today on CNBC.

Ackman is known for detailed research and has lobbied for shakeups at companies from Target Corp. to Canadian Pacific Railway Ltd. He had sought the new cash to bolster the buying power of his main hedge funds, which were prepared to put as much as 15 percent of their capital into the deal, according to the letter. Pershing Square manages about $12 billion, meaning its total investment could have been as much as $2.8 billion.

Peer Performance

The last single-stock fund Ackman raised, a $2 billion vehicle in 2007 that invested in Target, lost 90 percent of its value over the next two years. At the time, Ackman called it “one of the greatest disappointments” of his career. Pershing Square sold its Target stake in the first quarter of 2011, after shareholders rejected a board slate nominated by Ackman.

This year, Pershing Square gained 6.3 percent in its main fund through the end of last month, according to a report sent to investors. The performance lags behind such large competitors as Daniel Loeb’s Third Point Offshore Fund Ltd., which climbed 13 percent in the first half, and Nelson Peltz’s Trian Partners Ltd., which climbed 14 percent in 2013 through June 14.

Shorting Herbalife

Some investments haven’t fared well either. Retailer J.C. Penney had sunk 18 percent this year through yesterday. In April, the company ousted Chief Executive Officer Ron Johnson, whom Ackman had handpicked to lead the chain’s turnaround efforts.

In December, Ackman disclosed that Pershing sold short more than 20 million shares of Herbalife, saying that the weight-loss and nutrition company is a pyramid scheme. Ackman hasn’t “covered a single share” of Herbalife, CNBC reported today.

His stance on Herbalife prompted billionaire investor Carl Icahn to buy shares in the company, making him the biggest owner with more than 16 percent, according to data compiled by Bloomberg as of May. The pair have sparred publicly over their opposing views on that investment.

“I never would have been looking at Herbalife if Ackman hadn’t come out with that report, and because I’m not a great fan of his, I decided to look at it,” Icahn said earlier this month at the CNBC Institutional Investor Delivering Alpha Conference in New York.

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