US Federal Trade Commission (FTC) commissioner Rohit Chopra objected to his agency’s approval of the Linde-Praxair merger as he says it “is not without risks to competition”.
The FTC said on Monday the deal is subect Linde and Praxair divesting assets in nine industrial gases product markets (bulk liquid oxygen, bulk liquid nitrogen, bulk liquid argon, bulk liquid carbon dioxide, bulk liquid hydrogen, bulk refined helium, on-site hydrogen, on-site carbon monoxide, and excimer laser gases) in the US to resolve antitrust charges. The assets will be sold to companies including Messer Group and MATHESON Tri-Gas.
The $90bn megamerger creates the biggest global provider of industrial gases, but Chopra believes it fails to protect competition.
“The merger would be clearly anticompetitive in violation of the Clayton Act, with a high likelihood of harming manufacturers of a wide range of industrial and consumer products,” Chopra said in a statement.
“While the divestitures go a long way to address the anticompetitive concerns, the decision to approve this remedy was still a close call.”
The FTC voted 4-1 to approve the settlement, with Chopra voting against.
Under the merger, the industry leader – to be known as Linde plc – becomes bigger than France’s Air Liquide after its takeover of rival Airgas two years ago.
Other competition authorities agreed the merger before the FTC’s go-ahead on Monday including the European Commission, after Praxair’s sale of its European gases business to Japan’s Taiyo Nippon Sanso Corp for almost $6bn.
“The transaction, as originally structured, does not appear to have any significant merger-specific efficiencies that would guarantee benefits to customers,” Chopra said.
“However, the proposed order requires substantial divestitures that might preserve or even increase competition in some product markets.
“But even with the proposed remedies, this transaction is not without risks to competition.
“In particular, I would have preferred to include additional protections for the public to safeguard against risks often posed by the private equity buyer interest in the divested assets, as well as the level of debt financing and investment horizons involved.”
Linde is divesting the vast majority of its US industrial gas business to a joint venture, MG Industries, between Tier One industrial gases company Messer Group GmbH and CVC Capital Partners, a private equity firm.
“I would have preferred terms in the proposed order that would have required prior notice to or approval by the Commission of any asset sales by MG Industries,” Chopra said.
“There is past Commission precedent for doing so. In situations where there was a risk that the divestiture buyer may subsequently sell assets it acquired pursuant to a divestiture order, the Commission has sometimes ordered the divestiture buyer to agree to a prior approval provision covering any sale of the assets acquired for a defined period of time.
“Private equity funds continue to play a greater role in deal activity across the globe. Notably, private equity participation is associated with higher levels of debt financing, which can amplify both risk and returns on equity.
“At the most basic level, heavy debt burdens can increase the likelihood of insolvency. Private equity participation is also associated with other firm behaviour that can reduce long-term competition, including opportunistic asset sales. This risk may be more acute when funds purchase assets in unusual and distressed situations.
“It will be important to ensure that we are conducting careful and adequate due diligence with respect to buyers that are heavily reliant on debt financing and where investment firms exert significant control.”
Germany’s Linde and US-based Praxair have until 29th January, 2019, to complete certain divestitures in the US.