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Change Began at Air Products Before Ackman Entered

Stocks in this article: APD JCP HLF ROC EMR

NEW YORK ( TheStreet) -- Pershing Square Capital Management was instrumental in driving a shakeup of the management and board ranks at Air Products (APD), however, sources tell TheStreet that change was underway well before the Bill Ackman-run fund took a $2.2 billion stake in the under-performing chemicals manufacturer.

On Thursday, Air Products named three new independent directors to its board and said current CEO John E. McGlade would retire in 2014. Those changes were accepted by Pershing Square and the fund will now vote in favor of directors nominated by Air Products at its 2014 annual shareholder meeting.

Air Products named Seifi Ghasemi, CEO of Rockwood Holdings (ROC), Edward L. Monser, COO of Emerson Electric (EMR) and Matthew Paull, a former CFO of McDonalds (MCD) to replace three directors that will retire starting in 2014. The company also said it will begin a CEO search to replace McGlade upon his retirement in 2014.

The board overhaul and pending management change at Air Products were taken as a big win for Ackman, after a large investment in J.C. Penney (JCP) left Pershing with significant losses and sharp criticism by business luminaries such as Starbucks (SBUX) CEO Howard Schultz.

While Pershing did help to impart change at Air Products and was characterized by sources close to the matter as driving a helpful dialogue, the company was already in the process of making many of the changes announced on Thursday.

Air Products had hired executive search firm Heidrick & Struggles on retainer to find replacements for board directors reaching their retirement age before Pershing disclosed a 9.8% stake in the company in July, according to one source familiar with the situation.

Another source said John E. McGlade was likely already considering a retirement, after decades with the company that culminated in his appointment as CEO in 2007 and chairman in 2008.

"None of this was a tectonic shift," that source said of Pershing's impact on Thursday's announced management and board change.

" Ackman was pushing on an open door," another source said.

Air Products and Pershing Square declined to comment for this article.

Pershing Square unveiled a $2.2 billion stake in Air Products in late July, the biggest single investment in the hedge fund's history. In a July 31 SEC filing, the fund said it intended to engage with the company about its governance, board composition, and management, in addition to strategic discussions.

Prior to Pershing's disclosure, Air Products enacted a so-called "poison pill" amid heavy buying activity in the company's shares by a single investor. At around that time, Ackman also publicly said Pershing was poised to unveil its next big investment, after taking a highly public and controversial short position in supplements seller Herbalife (HLF) last December.

All sources who spoke with TheStreet said Pershing's discussions with Air Products centered on board and management change and not the company's operations or assets. Those sources characterized discussions as amicable and productive.

In the wake of a highly critical campaign for change at J.C. Penney, one source said Pershing Square may have chosen to adopt a less aggressive posture in his newest activist investment.

"I think the bad Ackman could have showed up, but the good Ackman showed up in this case," that source said.

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