Air Products CEO McGlade to Leave After Talks With AckmanSimon Casey and Jack Kaskey
Air Products & Chemicals Inc. said Chairman and Chief Executive Officer John E. McGlade will leave and three independent directors will be added, less than two months after activist investor William Ackman’s Pershing Square Capital Management LP became the company’s largest shareholder.
The next CEO will be recommended by a committee of Air Products directors with help from an executive search firm, the Allentown, Pennsylvania-based industrial-gas producer said today in a statement. McGlade, who took over as CEO in October 2007, will remain for the search and then retire in 2014.
“It appears Pershing Square has had a constructive dialog with management and the current board, which in our mind minimizes risk of a public proxy battle unfolding and should ensure a smoother transition once a new CEO is identified,” Michael J. Sison and other analysts at KeyBanc Capital Markets Inc., said in a note to clients today.
The shakeup at Air Products marks a success for Ackman after two other high-profile bets this year failed. Pershing Square sold its stake in retailer J.C. Penney Co. for a $500 million loss last month and it has a paper loss on its bet that shares of Herbalife Ltd., a weight-loss and nutritional supplement company, will decline.
Activist funds such as Pershing Square 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 larger U.S. competitor.
McGlade’s departure makes share buybacks and portfolio changes more likely, Edward Yang, an Austin, Texas-based analyst at Oppenheimer & Co., said in a note today. Changes may include structuring the U.S. hydrogen business as a tax-advantaged master-limited partnership, divesting non-gas businesses, consolidating joint ventures or splitting off the energy-focused units, John Roberts, an analyst at UBS Securities LLC, said in a report.
Air Products rose 2.3 percent to $109.78 at the close in New York. The stock has advanced 31 percent this year while Praxair has climbed 9.8 percent.
Ackman and other Pershing Square representatives can meet with the CEO candidate chosen by the board committee before the candidate is recommended to the full board, according to an agreement filed with regulators today.
Earnings before interest, taxes, depreciation and amortization were 24 percent of sales at Air Product in the past four quarters, trailing the 31 percent at Praxair, according to data compiled by Bloomberg.
The three independent directors who will join Air Products immediately are: Edward Monser, 63, the chief operating officer of Emerson Electric Co.; Matthew Paull, 62, a former chief financial officer at McDonald’s Corp. and a member of Pershing Square’s advisory board; and Seifi Ghasemi, 69, the chairman and CEO of U.S. chemical company Rockwood Holdings Inc.
Two of the new directors -- Paull and Ghasemi -- were nominated by Pershing Square, while Air Products identified Monser, according to a person familiar with the process who asked not to be identified because the negotiations were private.
Ghasemi previously worked 18 years for BOC Group Plc, an industrial gases producer that was acquired by Linde AG in 2006. That may help Air Products attract industry veterans, Mark Gulley, an analyst at BGC Partners LP, said in a note.
Monser and Paull will stand for election at Air Products’ 2014 annual meeting while Ghasemi will stand for election at the 2015 meeting. Three current Air Products directors will retire prior to next year’s meeting.
Pershing Square said July 31 it took a 9.8 percent stake in Air Products. Six days earlier, the gas producer adopted a poison-pill shareholder-rights plan, 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. Such plans dilute the stake of a hostile acquirer, making a takeover difficult.
Air Products employs more than 20,000 people and delivers gases by truck and pipelines, providing oil refiners with hydrogen used to make low-sulfur fuels and steelmakers with oxygen used to make furnaces burn more efficiently. Net income was $288.4 million in the quarter ended June 30 on sales of $2.55 billion.