APD Air Products and Chemicals Inc

Management and Board

x    "Mantle Ridge's Four Director Nominees are Highly Qualified"

The Truth: Air Products' nominees have significantly superior and more recent experience in industrial gases and chemicals, namely Alfred Stern, Wayne Smith, Bob Patel and Lisa Davis.

√   Paul Hilal possesses zero industrial experience, zero chemicals or energy experience, and zero industrial gases experience. Counting "engagement with APD" as such is incredibly misleading given Mr. Hilal has never served as a director of Air Products. Working at hedge funds that owned shares in Air Products 10 years apart does not create industrial gas expertise. Mr. Hilal also has a track record of shareholder value destruction and mismanaged succession processes at all of Mantle Ridge's public activist campaigns – Aramark, CSX and Dollar Tree.

√   Unable to attract the high-caliber nominees that Air Products' Board could accept, Mr. Hilal appears to have turned to his pre-existing relationships and substandard nominees, who are accustomed to being hired by activist investors, so that he can fill his now even further reduced slate of candidates.

√   Dennis Reilley has outdated experience – his last executive or operating role was over 18 years ago, and his last board seat was nearly six years ago. Mr. Reilley was also a former Mantle Ridge nominee at CSX and Dollar Tree and has misaligned himself from the interests of Air Products' shareholders by entering into a two-year consulting agreement with Mantle Ridge.

√   Sworn testimony on Mr. Reilley reportedly leaking confidential board information to a neighbor while serving on the boards of Covidien, DowDuPont and Marathon Oil, should certainly be disqualifying if true.

√   Tracy McKibben's energy experience stems mostly from running what appears to be her own small investment and consulting firm rather than direct, executive level experience possessed by the Company's nominees, Lisa Davis and Alfred Stern. Ms. McKibben also has a concerning history with activist investor The Clinton Group while serving on the board of a microcap company whose shares dropped from $43.60 to just $0.75 during her tenure on the board.

√   Andrew Evans has industry credentials limited to the U.S. and renewable energy experience that is inferior in caliber and scope to that of the Company nominees, specifically Lisa Davis. Mr. Evans similarly has affiliations with activist investor Carl Icahn, suggesting Mr. Evans and Ms. McKibben were chosen by Mantle Ridge for their potential loyalty to Mr. Hilal, rather than superior skillsets.

√   We believe the appointment of any one of Mantle Ridge's underqualified candidates to our Board could be fundamentally destructive to our business.

x    "Lack of credible succession plan"

The Truth: We have a CEO succession plan underway and anticipate timely announcement of a new President and related timeline for CEO succession no later than March 31, 2025.

√   The Board recognizes that succession planning is one of our most important roles, and an ongoing process based on the unique needs of the Company.

√   The process, which was launched in January 2023 and was formally announced in August 2024, prior to D.E. Shaw's or Mantle Ridge's involvement, is led by our Lead Independent Director with the support of the full Board and an independent search firm.

√   The Board search process has included 1000+ candidates. Five prioritized candidates are in the course of being actively assessed by the full Board. These candidates are of superior caliber and experience, well-known to investors, and are current or former public company CEOs with significant international experience and relationships.

√   This proxy contest has stalled our progress as many of the candidates have made clear they want to understand the outcome of the election before proceeding. We anticipate the announcement of a new President and related timeline for CEO succession no later than March 31, 2025.

x   "…Mantle Ridge believes the reconstituted Board should interview Eduardo Menezes…"

The Truth: Mantle Ridge is seemingly more interested in erratically and self-servingly replacing a successful and well-respected CEO with an underqualified candidate who will do their short-term bidding to the detriment of long-term value creation for shareholders.

√   Air Products is a global and complex organization with an approximately $65 billion market capitalization,² over 23,000 employees and industrial gas projects in more than 50 countries. These include world-scale projects that require interacting with heads of state and other government officials. Accordingly, prior public company CEO experience is a critical requirement for our next CEO, as is a thoughtful transition process.  

√   Eduardo Menezes does not possess any public company CEO or board experience. Mantle Ridge admits in its December 10, 2024 letter to Air Products' shareholders that Mr. Menezes was passed over for an "able alternative" as CEO of Linde.

√   Further, Mr. Menezes has been retired since leaving Linde in 2021. He would require substantial on-the-job training to get up to speed during a pivotal moment for the Company.

√   Mr. Menezes is insufficiently experienced and fails to meet the criteria for Air Products' next CEO that the Board has been actively pursuing.

√   Mantle Ridge does not trust their own CEO candidate to stand alone. Mantle Ridge only advocates for Mr. Menezes' appointment as CEO if paired with Mr. Reilley who has stale experience and appears disqualified to ever serve on a board again, based on media reports and court transcripts that he leaked confidential board information at three public companies where he served as a director.

x  Ed Monser "Failed to adequately engage with shareholders D.E. Shaw & Co. and Mantle Ridge"

x  "Independent Directors' access to shareholders is limited or chaperoned"

The Truth: The Board is open to shareholder feedback and is committed to maintaining a robust shareholder engagement program. As such, the Board engaged with both D.E. Shaw and Mantle Ridge, and Ed Monser himself had multiple follow-up calls with Mr. Hilal.

√   Mr. Hilal's suggestion that director engagement with shareholders has been "chaperoned" is disingenuous. During FY 2024, independent directors held a number of meetings to discuss a range of topics with our largest shareholders.

√   Following receipt of D.E. Shaw's letter, the full Board met in person with D.E. Shaw to hear their views directly. This meeting occurred prior to Mantle Ridge's involvement and D.E. Shaw's subsequent decision not to formally nominate directors.

√   Less than a week after learning of Mantle Ridge's investment, an ad-hoc committee of independent Air Products directors held a four-hour in-person meeting with Mantle Ridge to better understand Mr. Hilal's proposals for the Company. Mantle Ridge came ill-prepared with no formal presentation and focused the discussion on taking control of the Board and replacing a majority of the management team. Mantle Ridge initially proposed Mr. Reilley as a temporary CEO replacement until Air Products directors questioned his lack of recent experience and the instability of appointing an interim CEO. Several days later it was leaked to the media that Mantle Ridge's CEO candidate would be Mr. Menezes, who has never served as a public company CEO or director, and Mr. Reilley would be offered up as Executive Chairman.

√   The Board concluded that Mantle Ridge's choice of successor to Mr. Ghasemi was deeply troubling and called into question Mr. Hilal's judgment and preparation in seeking control of Air Products without any substantive plan for value creation. It led the Board to conclude that further engagement with Mantle Ridge would be fruitless and the best course of action was to let shareholders decide the Company's direction.

Business Strategy and Capital Allocation

x  "Several speculative projects have been pursued with flaws and risks that are incompatible with the core business"

The Truth: Significant market demand for clean hydrogen exists today and is growing, validating our strategy with major offtakes for our projects. Clean hydrogen is a natural extension of our leading core industrial gas business model.

√   Air Products has been at the forefront of capitalizing on clean hydrogen opportunities thanks to the scale and strategic positioning of its projects, as illustrated by its pioneering agreement to supply 70,000 tpy of green hydrogen to TotalEnergies under a 15-year take-or-pay offtake beginning in 2030. 

√   Various leading companies, including TotalEnergies, have issued requests for quotation, requesting capacity that far exceeds the capacity of our green hydrogen projects. The output of our NEOM project represents less than 5% of the gray hydrogen used by European refineries today.

√   Capturing even a small portion of the estimated global clean hydrogen market opportunity positions Air Products to deliver significant growth and shareholder value.

√   We are replicating our core industrial gas business model in clean hydrogen, and we expect our clean hydrogen projects to deliver returns at or above our core industrial gas return levels, producing significant additional value to our shareholders. We will produce hydrogen under long-term, take-or-pay (e.g., minimum volume) arrangements, with anchor customers and long-term committed offtake.

√   We have rejected projects that did not satisfy our return thresholds and constantly assess project returns and risks. To that effect, we are not pursuing the Texas Green Hydrogen joint venture, as it did not meet our established guidelines for new, low-carbon projects. 

x  "Lack of substantial offtake with creditworthy customer[s]"

The Truth: We have always intended to have fully-committed and reliable long-term offtake at attractive economics at the onstream date for our clean hydrogen projects.

√   Our clean hydrogen projects will be underpinned by a majority of long-term, take-or-pay agreements with high quality customers, consistent with our traditional hydrogen business.

√   This strategy is evident in our current offtake agreements. To provide a few examples:

•   ~35% of NEOM production is contracted on a take-or-pay basis, with negotiations underway for remaining production. We have a 15-year agreement with TotalEnergies to supply their European refineries. Founded in 1924, TotalEnergies is one of the largest energy companies in the world, with a $126 billion market capitalization³ and A+ / Aa3 investment grade credit ratings.

•   ~60% of Alberta, Canada production is committed, with negotiations underway for remaining production. We have a long-term contract with anchor customer Imperial Oil, Canada's largest petroleum refiner which is majority-owned by ExxonMobil.⁴

•   We are in active discussions with potential offtakers for our Louisiana project, which is expected to come onstream in 2028. There remains significant time to finalize offtake contracts before the onstream date, and we will be strategic about our timing.

Financial Performance

x  "Below-Peer Profitability: EBITDA and EBIT Margins trail Linde..."

The Truth: We have industry-leading

Adjusted EBITDA margin.⁵ We enjoy margins similar to Linde and meaningfully higher than Air Liquide and Nippon Sanso.

√   Our FY2024 Adjusted EBITDA margin⁵ was 41.7%, versus Linde's disclosed margin of 38.2%.⁶ Consistent with how Linde reports its equity affiliates' income, we include equity affiliates' income in Adjusted EBITDA but not in sales.

√   We have consistently reported our Adjusted Operating margin5 above without any equity affiliates' income contribution, and we still maintain a strong margin on this basis. Our FY2024 Adjusted Operating margin⁵ above of 24.4% trails Linde (28.8%) but is higher than Air Liquide (19.2%) and Nippon Sanso (13.1%).⁷

x  "Misleading Growth Calculation: not 10%, rather 8% EPS CAGR" 

The Truth: We have delivered consistent results despite significant volatility in the global economy, including an 11% compound annual growth rate in our Adjusted EPS5 between FY2014 and FY2024.

√   Our double-digit growth rate reflects the same underlying business from beginning to end to ensure a like-for-like comparison. We consistently reconcile fiscal year Adjusted EPS and transparently disclose adjustments to arrive at the non-GAAP measure. Significant contributions from business divestitures, such as the 2016 Electronics Materials Division ("EMD") and 2017 Performance Materials Division ("PMD"), are not considered a like-for-like comparison to underlying business. Our FY2024 Adjusted EPS5 above does not include any contribution from these two businesses.

√   Adjustments for capital structure and financing decisions, such as the EMD and PMD divestiture proceeds which were used to repay maturing debt, are not appropriate in EPS.

•   We did not redeploy the proceeds from EMD and PMD in a way that fundamentally changed the underlying business or skewed our long-term growth trajectory. Rather, we primarily used net proceeds to repay debt. Further, it would not be appropriate to include the EMD contribution to FY2014 Adjusted EPS because we spun-off the business and most of the value from that transaction accrued to our shareholders – not Air Products.⁸ 

√   Moreover, our long-term organic sales growth is also higher than that of our peers. Air Products has grown at a 4% compound annual growth rate from FY2014 to FY2024.⁹ The closest peer has a 2% long-term organic sales compound annual growth rate. 

x  "ROIC is worst in industry"

The Truth: Based on Mantle Ridge's calculations, Air Products' ROIC (Return on Invested Capital) would be higher than that of Air Liquide's if not for Mantle Ridge's adjustment to remove goodwill and indefinite intangible assets from capital employed¹⁰ – thereby giving Air Liquide the benefit of acquired profits while not properly capturing the consideration used to acquire those profits.

√   Mantle Ridge's adjusted ROIC figures for Air Products are based on Mantle Ridge's extrapolation and are not substantiated by Company data. Mantle Ridge has created its own arbitrary definition of return, referred to as "MR Adj. ROIC Excluding Construction in Progress," without providing sufficient data and detailed sourcing to support its assumptions. 

√   Based on Mantle Ridge's calculations,¹¹ Air Products' ROIC would be one percent higher than that of Air Liquide if not for Mantle Ridge's adjustment to remove goodwill and indefinite intangible assets from capital employed. This adjustment gives Air Liquide the benefit of acquired profits while not accounting for some of the consideration used to acquire those profits. Further, neither of Air Products nor Air Liquide report their returns on this basis.

Other Matters

x  "A 2021 arbitration panel found that the company Mr. Ghasemi previously led committed a largescale fraud on his watch."

The Truth: Mantle Ridge is attempting to smear Mr. Ghasemi by distorting a commercial dispute involving Rockwood Holdings – in which Mr. Ghasemi was dismissed as a party – perhaps to distract from ethical questions against Mr. Reilley.

√   Mantle Ridge has distorted a commercial dispute involving Rockwood Holdings and its sale in 2014 to Huntsman International when Mr. Ghasemi served as CEO.

√   Huntsman International sued Rockwood Holdings and the engagement moved to arbitration. Mr. Ghasemi and other named officers of Rockwood were dismissed as parties from the action prior to its resolution.

√   In a letter to the Air Products Board dated October 4, 2024, Mantle Ridge stated: "We have admired with greatest satisfaction the Company's many important achievements under Seifi's leadership, and under the stewardship of the Board. We have a deep admiration and personal regard and affection for Seifi." Mantle Ridge went further to say: "We are confident that change can be effected in a way that ensures Seifi's legacy is duly protected, preserved, and celebrated. This is a priority for us, just as it is for the Board." 

√   Mantle Ridge seems to be spinning the facts of an unrelated commercial transaction to be convenient for its own interests perhaps to distract from the ethical questions against its own candidate, Mr. Reilley.

x  "To be clear, Mr. Reilley in no way acted inappropriately, and has never been accused of or charged with any impropriety or wrongdoing in connection with the matter."

The Truth: According to the court filings, two individuals testified under oath that a Director (later identified in media reports as Mr. Reilley) leaked confidential board information from three separate public companies, to a neighbor, including information regarding a merger transaction before it was publicly announced.

√   In February 2019, a purported friend of Mr. Reilley, John Davidson, signed a plea agreement with the United States, admitting to making a false statement to the FBI that he had never received from "D.R." any non-public information, which "D.R." had acquired as a result of his position on the boards of Marathon Oil, DowDuPont, or Covidien.¹² The plea agreement used the initials "D.R." only when referring to the director in question. We note that Mr. Reilley was not named directly in the complaint by the United States.

√  Shortly thereafter, the media reported on the charges brought against Mr. Davidson, and noted clearly that the charges stemmed from the FBI's investigation into Mr. Reilley and whether insider information was provided about the impending merger of Covidien PLC, with its rival, Medtronic Inc.

√  In an SEC enforcement action against an associate of Mr. Davidson, John Special, who was ordered to pay nearly $3 million for allegedly trading on the basis of the information leaked by Mr. Davidson, Mr. Special claimed to have received material, non-public information from a "Director" who served on the Boards of Covidien, Marathon Oil and DowDuPont, including, in the case of Covidien, regarding a proposed transaction between Covidien and Medtronic.

√  While Mr. Reilley was never formally charged by the FBI or the SEC for any wrongdoing, the information revealed, if true, raises grave concerns about Mr. Reilley's judgement, trustworthiness and ability to comply with his basic duty of confidentiality as a director.

√  These circumstances not only call into question Mantle Ridge's judgment in putting Mr. Reilley forward, but also the credibility of the entire Mantle Ridge slate and campaign. In the Board's view, this matter should disqualify Mr. Reilley from ever again serving on a public company board.