UPDATE 3-Ackman's Pershing Square unveils stake in Air Products
* Investment valued at $2.2 bln
* Stake is Ackman's largest-ever investment by value
* Air Products shares up about 3 percent
BOSTON/NEW YORK July 31 (Reuters) - Hedge fund manager William Ackman unveiled his biggest bet ever on Wednesday, announcing a $2.2 billion play on Air Products & Chemicals Inc., but shed no light on how the billionaire trader kept the position secret for the past two months.
The activist investor's Pershing Square Capital Management owns 9.8 percent of the industrial gas maker, making it the company's biggest shareholder. Pershing Square might have bought more if Air Products had not adopted a "poison pill" defense to prevent a takeover when some on Wall Street began speculating it 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 he declined to name.
In a filing with the Securities and Exchange Commission, Ackman said on Wednesday that he began buying the stock in early June and believes it to be "undervalued" and an "attractive investment." He did not finish buying shares until Tuesday.
Much of the buying was through seven holding companies Pershing Square incorporated in Delaware. Most of the entities were incorporated in early June, but one was formed on May 23 and the final one was incorporated on July 2.
Over the years, Ackman has used similar entities to accumulate shares in target companies, such as for a big stake bought in Fortune Brands in 2010.
Air Products, whose rivals include Praxair Inc, France's Air Liquide SA and Germany's Linde AG , said in a statement that it has not been in touch with Ackman but looks forward to engaging with Pershing Square to understand its views.
The "poison pill" plan gives existing shareholders the right to buy new shares at a discount if a person or group were to acquire 10 percent of the company without board approval. .
One big mystery is how Ackman managed to keep the investment under wraps as he was building his very large stake.
Investors are required by federal securities law to disclose when they acquire 5 percent or more in a publicly traded U.S. company. But hedge fund managers, in particular those pursuing activist strategies, have become skilled over the years at finding ways around the regulatory requirement.
They can delay the disclosure process by requesting "confidential treatment" from the Securities and Exchange Commission to avoid having to disclose stakes under the argument that doing so might interfere with a business strategy.
Pershing Square has made use of this practice and filed an updated quarterly holding list in April for the quarter ended Dec. 13, 2012, revealing that it had a 5.9 million share stake in Mondelez International.
Securities law experts said it is likely that Ackman may have deployed a similar strategy for building a large stake in Air Products.
For Ackman, the Air Products announcement comes at a critical time, as he rides a $1 billion short bet against Herbalife. Reuters reported on Tuesday that Pershing Square has incurred at least a $300 million loss on its bearish bet on the nutritional drink and supplement company.
CNBC reported on Wednesday that investor George Soros, a sometime tennis partner of Ackman's, took a large long position in Herbalife. Carl Icahn, a long-time rival of Ackman, also holds a large long position in Herbalife, which Ackman says is a pyramid scheme.
With APD shares now trading at $108.93 on Wednesday, up nearly 16 percent over the last month, Ackman might be able to show his investors gains for the month and boost his year-to-date performance. Other winners in the portfolio include Procter & Gamble, Canadian Pacific Railway and Howard Hughes Corp.
What Ackman may like about Air Products is that the company has few competitors and its industrial gas business has lucrative long-term contracts. However, in recent months it has been hit by high exposure to sluggish growth in Europe and analysts say it should divest its non-core gas businesses.
Those businesses account for roughly 20 percent of sales, including a chemicals unit and one that caters to computer chip makers.
Ackman's stake comes two years after Air Products unsuccessfully tried to buy smaller rival Airgas Inc in a $5.9 billion hostile bid. Ironically, Airgas successfully used a own "poison pill" defense to ward off Air Products.