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Can Bill Ackman Ignite Air Products?

Paul Ausick

Pershing Square Capital Management this morning filed a report with the U.S. Securities and Exchange Commission revealing that it has purchased a 9.8% stake (about 20.55 million shares) in Air Products & Chemicals Inc. (APD). The move could not have been too big a surprise to Air Products, which last week adopted a poison pill in response to reports that Pershing Square and its chief, Bill Ackman, were building up a stake in the company.

The $2.2 billion that Ackman paid for its stake in Air Products is the largest investment that he has ever paid for a stake in a company. The previous high was a $1.8 billion stake in consumer products giant Procter & Gamble Co. (PG). That one resulted in the ouster of P&G’s CEO and a gain of about 32% on Ackman’s investment.

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Not everything has turned out so well though. Ackman’s stake in J.C. Penney Co. Inc. (JCP) turned sour and resulted in the hiring and firing of the company’s CEO without a concomitant sharp rise in the share price.

And then there is Herbalife Ltd. (HLF). Ackman’s $1 billion short play has been absolutely crushed, and about the only thing that will save it would be a federal investigation. That may still happen, but the odds are against it. In fact, there’s a report that investor George Soros has taken the other side of Ackman’s bet against Herbalife. Soros acquired about an 8% stake in J.C. Penney stock earlier this year, giving Ackman some relief from the plunging stock.

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Ackman did score a big win with his attack on Canadian Pacific Railway Ltd. (CP). Again, he was able to force the resignation of the CEO and he took control of the board. The railroad’s share price has more than doubled since his $1.4 billion investment in 2011. Ackman said in early June that he plans to sell about 30% of his stake in Canadian Pacific over the next six to 12 months.

Another success, at least so far, is the 11% stake in Burger King Worldwide Inc. (BKW) that Ackman took when that company came public last year. Burger King’s share price is up about 25% since the initial public offering.

Air Products, on the surface, looks like another investment like P&G or Canadian Pacific: a company with little share price growth, or any real growth for that matter, and a chief executive officer who has had three years to turn things around. Air Products might be a different story because it is one of the S&P Dividend Aristocrats and has increased its annual dividend for 30 consecutive years. Some 86% of the company’s shares are held by institutional holders, and the company pays a dividend yield of 2.70%.

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How persuasive Ackman can be with those dividend-oriented shareholders likely will be the determining factor on whether this latest investment is a success.

Air Products shares are up 2.7% just before noon today at $108.53, after posting a new 52-week high of $109.98. The 52-week low is $76.78.

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