Ackman's Pershing Square takes $2.2 billion stake in Air Products

Wed Jul 31, 2013 6:09pm EDT
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By Svea Herbst-Bayliss, Swetha Gopinath and Ernest Scheyder

BOSTON/NEW YORK (Reuters) - Hedge fund manager William Ackman unveiled his biggest bet ever on Wednesday, a $2.2 billion play on Air Products & Chemicals Inc (APD.N: Quote) that the billionaire trader kept secret for two months.

The activist investor's Pershing Square Capital Management now owns 9.8 percent of the industrial gas maker, making it the company's biggest shareholder. Pershing Square might have bought even more, but Air Products adopted a "poison pill" defense to prevent a takeover after some on Wall Street began wondering whether the company might be in Ackman's sights.

Speculation mounted earlier this month that Ackman, who tends to make only a few concentrated bets at a time, was laying the groundwork for something big when he set out to raise as much as $1 billion to invest in a company that he called strong but lagging its peers and declined to name.

Pershing Square began buying Air Products stock in early June and Ackman said in a filing that he believes the company to be "undervalued" and an "attractive investment."

In some ways, Air Products may look a little like Canadian Pacific Railway, which the hedge fund also described as a rock solid company that was woefully underperforming.

In the 21 months since Ackman took on Canada's second-largest railway with a $1.4 billion investment, he got seven new directors elected to the board, replaced the chief executive and scored one of his biggest investment successes, making some $2 billion in profit in less than two years.

"We like Air Products because of its defensive characteristics which are beneficial in times of slower economic growth," said James Sheehan, an analyst at SunTrust Robinson Humphrey. But he also said, "the company does lag on several metrics and this is where an activist investor could really improve things."

As word spread on Wall Street that Ackman was trimming his position in Canadian Pacific and readying another big bet, the fund still managed to keep the target's name secret until it had completed buying on Tuesday. It announced the news on Wednesday in a regulatory filing within the 10 calendar day window of owning 5 percent or more in publicly traded company.   Continued...

Activist shareholder William Ackman of Pershing Square Capital Management speaks during the Canadian Pacific Railway Ltd. REUTERS/Mike Cassese/Files