Global investment firm D.E. Shaw has called on Air Products to address its “longstanding underperformance” in its stock performance and “deficiencies” in governance and capital allocation policies.
In an open letter to Air Products’ Board of Directors on October 10, D.E. Shaw detailed its concerns after a month of seeking constructive dialogue with the company.
In both the letter and an October 2 meeting with the Air Products Board and CEO, D.E. Shaw presented seven actions aimed at boosting long-term shareholder value.
Specifically, Air Products was advised to accelerate efforts to de-risk large project commitments by securing offtake agreements. D.E. Shaw also urged the company to publicly commit to linking future capital investments to such agreements and adopt a capital allocation framework limiting CapEx to mid-teen percentages of revenue after fiscal year 2026.
The Board was also under scrutiny. D.E. Shaw said that a refresh of the board with “highly qualified, independent directors with relevant experience leading capital-incentive businesses and managing succession plants” was needed.
D.E. Shaw further called for a clear, credible, and transparent CEO succession plan to be communicated.
The full list of D.E. Shaw’s suggestion action points is as follows:
- Accelerate efforts to de-risk existing large project commitments by signing offtake agreements at reasonable return hurdles
- Publicly commit to tying future capital investment to offtake agreements, consistent with well-established practice in the industrial gas sector
- 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
- Communicate a clear, credible, and transparent CEO succession plan
- Refresh the Board with highly qualified, independent directors with relevant experience leading capital-intensive businesses and managing succession processes
- Restructure executive compensation to improve alignment with strategy and performance; and
- Form one or more ad hoc board committees to focus on and oversee these critical initiatives on behalf of shareholders.
D.E. Shaw has more than $60bn in investment capital and a history of working with companies. It holds a “significant economic position” in Air Products.
When presenting its concerns, D.E. Shaw said that “many of the [Air Products] board members present seemed unwilling or unable to engage with the substance of our analysis and suggested actions.”
The letter concluded by citing a lack of urgency from the board to address persistent share price underperformance, compelling D.E. Shaw to go public with its analysis and recommendations.
Leadership moves and project delays
In May 2023, it was announced that Air Products had extended Seifi Ghasemi’s term as Chairman, President, and CEO until September 30, 2028. From September 30, 2024, and each year thereafter, the contract term will automatically renew to be a five-year term unless either party terminates the agreement.
Read more: Air Products extends Ghasemi’s term as Chairman, President, and CEO
In July 2024, a new senior management board was announced by Air Products, but no change to the Board of Directors was made or mentioned.
At the time, Air Products said the senior management board would execute the its two-pillar growth strategy: to grow its industrial gas business, including related technology and equipment, and to be a first mover in clean hydrogen.
Read more: Air Products names new senior management board
In the past, Air Products has said that it will not make a final investment decision on its planned $4bn green hydrogen production plant in Wilbarger County, Texas. It said it will wait until US subsidiary rules under the Inflation Reduction Act (IRA) are finalised.
Read more: Air Products stalls $4bn project to wait on final call about green hydrogen
Telling an investor call a “significant amount” of engineering had already been undertaken, Seifi Ghasemi, CEO of Air Products, said, “We are not going to make a commitment on FID on that project until the rules for the implementation of the IRA (Inflation Reduction Act) are finalised.”
