The D. E. Shaw Group Calls for Air Products and Chemicals to Address Longstanding Underperformance

Rhea-AI Summary

The D. E. Shaw group, a global investment firm with over $60 billion in investment capital, has sent an open letter to the Board of Directors of Air Products and Chemicals, Inc. (NYSE: APD) calling for changes to address longstanding underperformance and governance issues. The letter outlines specific proposals to generate long-term shareholder value, including:

• Accelerating efforts to de-risk large project commitments
• Tying future capital investment to offtake agreements
• Establishing a new capital allocation framework
• Communicating a clear CEO succession plan
• Refreshing the Board with qualified, independent directors
• Restructuring executive compensation
• Forming ad hoc Board committees to oversee these initiatives

The D. E. Shaw group expressed disappointment with the Board's apparent lack of urgency in addressing these concerns and has made their analysis and recommendations public.

Positive

• D. E. Shaw group, a significant shareholder, is actively engaging with APD to improve shareholder value
• Proposed changes aim to address longstanding underperformance and improve governance
• Specific recommendations provided for capital allocation, project de-risking, and board refreshment

Negative

• APD has experienced persistent and long-term share price underperformance
• Board members appeared unwilling or unable to engage with D. E. Shaw's analysis and suggestions
• Follow-up meeting to discuss proposals was abruptly cancelled by APD's Lead Independent Director
• Lack of urgency from APD's Board to address shareholder concerns

Insights

Financial Analyst

This letter from D.E. Shaw to Air Products and Chemicals (APD) is a significant development that could impact the company's future direction and shareholder value. The activist investor's critique focuses on several key areas:

• Longstanding total shareholder return underperformance
• Deficiencies in governance and capital allocation policies
• Need for de-risking large projects and tying future investments to offtake agreements
• Establishing a new capital allocation framework
• Implementing a clear CEO succession plan
• Board refreshment and executive compensation restructuring

These demands from a major shareholder could lead to substantial changes in APD's strategy and operations. If implemented, they may improve capital efficiency and potentially boost shareholder returns. However, the company's apparent reluctance to engage fully with D.E. Shaw suggests potential for a contentious process ahead. Investors should monitor this situation closely, as it could lead to significant shifts in APD's business model and valuation.

Corporate Governance Expert

D.E. Shaw's letter highlights serious concerns about Air Products and Chemicals' corporate governance practices. The key issues raised include:

• Lack of transparency in CEO succession planning
• Need for board refreshment with relevant industry experience
• Inadequate executive compensation structure
• Insufficient board oversight on critical initiatives

These points suggest potential weaknesses in APD's governance framework that could be impacting its performance and shareholder value. The call for forming ad hoc board committees and bringing in new directors with specific expertise indicates a push for more robust oversight and strategic direction. The board's reported reluctance to engage substantively with these concerns is troubling from a governance perspective. This situation may lead to increased scrutiny from other shareholders and could potentially result in proxy battles or other forms of shareholder activism if not addressed promptly and effectively by APD's leadership.

Reiterates the Need for the Board to Engage in Proper Succession Planning and Insist on a More Rigorous Capital Allocation Policy

NEW YORK, Oct. 10, 2024 /PRNewswire/ -- The D. E. Shaw group, a global investment and technology development firm with more than $60 billion in investment capital and a history of working with companies to help build long-term value, today sent an open letter to the Board of Directors of Air Products and Chemicals, Inc. (NYSE: APD) (the "Company" or "APD") calling for changes aimed at addressing the longstanding underperformance in its shares and deficiencies in its governance and capital allocation policies. Funds advised by D. E. Shaw & Co., L.P. are shareholders of APD and currently hold a significant economic position in the Company.

The initial set of communications, including a portion of the presentation D.E. Shaw made to the APD Board on October 2^nd, is available HERE.

The full text of today's open letter to the Board is as follows:

Board of Directors
Air Products and Chemicals, Inc.
1940 Air Products Boulevard
Allentown, PA 18106-5500

We are writing to you on behalf of certain investment funds advised by D. E. Shaw & Co., L.P., a member of the D. E. Shaw group. The D. E. Shaw group is a global investment and technology development firm with more than $60 billion in investment capital and a history of working with companies to help build long-term value. Funds advised by D. E. Shaw & Co., L.P. are shareholders of Air Products and Chemicals, Inc. (the "Company" or "APD") and currently hold a significant economic position in the Company.

We initially reached out to you privately over a month ago in the hopes of having a constructive dialogue aimed at addressing the Company's longstanding total shareholder return underperformance as well as deficiencies in the Company's governance and capital allocation policies. At our initial meeting with the Board of Directors and the Company's CEO on October 2^nd, we presented our extensive analysis as well as specific proposals to generate long-term shareholder value, including that the Company should:

1. Accelerate efforts to de-risk existing large project commitments by signing offtake agreements at reasonable return hurdles;
2. Publicly commit to tying future capital investment to offtake agreements, consistent with well-established practice in the industrial gas sector;
3. Establish and publicly announce a new capital allocation framework whereby Air Products' CapEx levels will not exceed the mid-teens as a percentage of revenue beyond fiscal year 2026;
4. Communicate a clear, credible, and transparent CEO succession plan;
5. Refresh the Board with highly qualified, independent directors with relevant experience leading capital-intensive businesses and managing succession processes;
6. Restructure executive compensation to improve alignment with strategy and performance; and
7. Form one or more ad hoc Board committees to focus on and oversee these critical initiatives on behalf of shareholders.

Despite having received our materials days in advance of the meeting, many of the Board members present seemed unwilling or unable to engage with the substance of our analysis and suggested actions. Instead, the Company's Lead Independent Director, Ed Monser, indicated that a substantive response would occur at a subsequent meeting. That follow-up meeting was abruptly cancelled by the Company's Lead Independent Director.

Given the apparent lack of urgency on the part of the Company's Board to engage in meaningful dialogue or take steps to address Air Products' persistent and long-term share price underperformance, we are today compelled to make public our analysis and recommendations for change.

We remain open to engaging with the Company in a productive and constructive manner to advance the changes we believe are necessary to improve the Company's business, strategy, and governance.

Best Regards,

Edwin Jager
Managing Director
D. E. Shaw & Co., L.P.

Michael O'Mary
Managing Director
D. E. Shaw & Co., L.P.

About the D. E. Shaw Group
The D. E. Shaw group is a global investment and technology development firm with more than $60 billion in investment capital as of June 1, 2024, and offices in North America, Europe, and Asia. Since our founding in 1988, our firm has earned a reputation for successful investing based on innovation, careful risk management, and the quality and depth of our staff. We have a significant presence in the world's capital markets, investing in a wide range of companies and financial instruments in both developed and developing economies. For more information, please visit www.deshaw.com. 

This letter reflects the opinions of D. E. Shaw & Co., L.P. ("DESCO LP") on behalf of certain investment funds managed or advised by it that currently beneficially own, or otherwise have an economic interest in, shares of Air Products and Chemicals, Inc. (the "Company" or "APD"). This letter is for informational purposes only and does not constitute investment advice or convey an offer or solicitation of any type with respect to any securities or other financial products. The views expressed in this letter are expressed as of the date hereof and are based on publicly available information and DESCO LP's analyses. This letter contains statements reflecting DESCO LP's opinions and beliefs with respect to the Company and its business based on DESCO LP's research, analysis, and experience; all such statements are based on DESCO LP's opinion and belief, whether or not those statements are expressly so qualified. DESCO LP acknowledges that the Company may possess information that could lead the Company to disagree with DESCO LP's views and/or analyses. Nothing contained in this letter may be relied upon as a guarantee, promise, assurance, or representation as to future events. The investment funds managed or advised by DESCO LP are in the business of trading (i.e., buying and selling) securities, and it is expected that they will from time to time engage in transactions that result in changes to their beneficial and/or economic interest in the Company.

Media Contact
Prosek Partners
Brian Schaffer / Kiki O'Keeffe
Pro-DESCO@prosek.com 

 

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SOURCE The D.E. Shaw Group

FAQ

What changes is D. E. Shaw group proposing for Air Products and Chemicals (APD)?

D. E. Shaw is proposing several changes for APD, including de-risking large projects, tying capital investment to offtake agreements, establishing a new capital allocation framework, communicating a clear CEO succession plan, refreshing the Board, restructuring executive compensation, and forming ad hoc Board committees to oversee these initiatives.

Why is D. E. Shaw group concerned about Air Products and Chemicals (APD)?

D. E. Shaw is concerned about APD's longstanding total shareholder return underperformance and deficiencies in the company's governance and capital allocation policies. They believe these issues need to be addressed to improve the company's business, strategy, and governance.

How has Air Products and Chemicals (APD) responded to D. E. Shaw group's proposals?

According to D. E. Shaw's letter, APD's Board members appeared unwilling or unable to engage with their analysis and suggestions during an initial meeting. A follow-up meeting was abruptly cancelled by APD's Lead Independent Director, indicating a lack of urgency to address the concerns raised.

What is D. E. Shaw group's current position in Air Products and Chemicals (APD)?

The letter states that funds advised by D. E. Shaw & Co., L.P. are shareholders of APD and currently hold a significant economic position in the company. The exact size of their stake is not disclosed in the provided information.