Air Products loses proxy fight to Mantle Ridge, CEO stays for now

Updates stock price in paragraph 3, adds comment from company in paragraphs 5 and 6, adds Eduardo Menezes in penultimate paragraph

By Svea Herbst-Bayliss

NEW YORK, Jan 23 (Reuters) - Air Products and Chemicals APD.N shareholders on Thursday handed victory to an activist investor who had pushed the industrial gases company to replace its 80-year-old chief, by electing three new directors and unseating the CEO from the board.

The company said preliminary tallies showed investors elected three of Mantle Ridge Capital Management's four director candidates to the company's nine-member board. They did not elect CEO Seiffolah Ghasemi, who had also been the board chair, lead director Edward Monser nor long-serving director Charles Cogut.

Investors reacted positively to the news by pushing up the stock price 1.6%, trading at $321.94.

The vote ends one of the most fiercely contested board battles in recent memory, with a CEO facing off against an investor who had helped put him on the board more than a decade ago in an earlier battle with another activist investor.

The outcome, which bankers and lawyers called a resounding win for Mantle Ridge, raises questions about Ghasemi's future at Air Products as it is highly unusual for a CEO to be voted off his own board.

For now, the company said Ghasemi will remain CEO. The board will promptly appoint a new board chair and discuss succession planning. It welcomed the newcomers, thanked the outgoing directors and said it appreciated engaging with shareholders during the proxy fight.

The vote may embolden other activists to start corporate fights if management and boards do not listen to the agitators.

For months, Mantle Ridge founder Paul Hilal, the board nominees and industry executive Eduardo Menezes crisscrossed the country to press their case with mutual funds, pension funds and other investors.

Their arguments, that new blood was needed on the board to push for a succession plan for Ghasemi, persuade the company to allocate its capital differently and scale back on risky projects, resonated.

Shareholders elected Hilal, Andrew Evans, a former chief financial officer with experience in emissions trading for utilities, and Dennis Reilley, an executive with knowledge of the industrial gases industry. Proxy advisory firm Institutional Shareholder Services had recommended these three candidates.

For Hilal, who founded Mantle Ridge in 2016, this marked the second time he tangled with Air Products after having been a partner at Pershing Square Capital Management when the hedge fund battled the company more than a decade ago and helped seat Ghasemi and Monser on the board.

Unlike Bill Ackman, who runs Pershing Square, Hilal has avoided noisy proxy fights and largely stayed out of the limelight. But investors expect him to help shift gears at Air Products, and the stock price has climbed more than 10% since Mantle Ridge's stake was disclosed in early October.

By the time many institutional investors were already voting, Air Products last week laid out a more specific timeline for Ghasemi's departure. Air Products said it will announce a new president by the end of March and that this person will then become CEO within three months of joining.

Mantle Ridge lined up industrial gases executive Eduardo Menezes, a former executive vice president at Linde and senior executive at Praxair, as a possible successor to Ghasemi.

The company had repeatedly warned that electing even one of Mantle Ridge's candidates would be disorienting and disruptive for the company's leadership and long-term strategy.