Air Products: Neither an Easy nor Quick Fix. The Right Team Will Matter

C-MACC Sunday Thematic and Weekly Recap

Air Products: Neither an Easy nor Quick Fix. The Right Team Will Matter

• The activists looking at Air Products are looking at different strategies – we do not believe that the short-term fixes suggested by DE Shaw will work. Mantle Ridge has the better team/plan, but it will be an uphill struggle.
• Divesting the hydrogen projects or securing off take agreements may offer some risk relief, but this is likely already priced into the stock, baring some news related volatility. Fixing the core business is what is needed.
• Air Products has not won a competitive bid for a traditional air separation project in years. Repositioning the company to compete requires the sort of granular blocking and tacking skills that the Mantle Ridge team brings.
• If the Mantle Ridge plan wins, the stock may trade on the expectations of the long-term change the market knows Mr. Reilley & Mr. Menezes can deliver. Mr. Sutton is a very skilled leader also, but with no gases history.
• Otherwise, we look at declining US ethylene margins, weakness in Europe more generally, the significant cost advantage for PVC in the US, the real message from the recent IEA hydrogen report, and gasification.

Exhibit 1: Compare the market confidence in Linde today versus the skepticism at the time of the Linde acquisition. Air Products has bounced off a recent low, but there is significant upside if the company’s direction can be turned.

Source: CapitalIQ, C-MACC Analysis, October 2024

See PDF below for all charts, tables and diagrams