Johnson Matthey pulls back on hydrogen investment

The precious-metal-catalyst specialist Johnson Matthey is meeting the demands of its largest investor, Standard Investments, part way by enacting a series of reforms, most notably reining in spending on its struggling hydrogen technology business.

Standard Investments, which holds an 11% stake in Matthey, is an affiliate of Standard Industries, owner of the specialty chemical maker W.R. Grace. Last month, Standard Investments wrote a letter to Matthey’s chairman, Patrick Thomas, complaining about lackluster performance.

Notably, Standard Investments is concerned that Matthey has been spending too much money—about $385 million to date—on its hydrogen business. It says the business bears similarities to Matthey’s battery materials unit, which Matthey poured $420 million into and ultimately sold at a loss.

The shareholder is calling for a strategic review of the hydrogen business, including consideration of a possible sale; a refresh of Matthey’s board with new directors; and a review of the entire company.

Matthey’s hydrogen technology business makes components such as catalyst-coated membranes for fuel cells and electrolyzers. The business had about $105 million in sales and losses of about $60 million in the company’s most recent fiscal year. The firm spent about $120 million on capital investments for the unit that same year, about a quarter of the company-wide total. Not included in the hydrogen technology business are other hydrogen-related technologies, such as the firm's process for generating hydrogen from natural gas and capturing and storing by-product carbon dioxide.

Projects that seemed promising a few years ago are now on shaky ground as executives scrutinize the potential markets for hydrogen against high project costs. For example, Air Products and Chemicals, which recently faced an activist-investor challenge of its own, recently pulled out of a $4 billion green hydrogen project in Texas.

“The sharp acceleration and then deceleration of the hydrogen sector has posed an industry-wide challenge,” Matthey says in a statement.

Matthey hasn’t conceded to all of Standard Investments’ demands. Instead, it says it is halting all capital expenditures meant to grow the business and will invest only the bare minimum for maintenance—no more than $6 million per year.

Other measures include a new board-level investment committee to ensure disciplined deployment of capital and a review of executive pay to better link compensation to cash generation.

Charles Bentley, a stock analyst at the investment firm Jefferies, says in a note to clients that Standard Investments has been “a key support for the investment case” for Matthey by forcing better operational performance and, potentially, by taking over the company at some point.