The European Commission has this evening announced the approval of Praxair’s proposed merger with The Linde Group, signalling a major step forward for the deal.

The conditional clearance leaves just seven regional approvals pending, with arguably the key one being that of the US Federal Trade Commission (FTC).

The European Commission ‘cooperated closely’ with the FTC, among others, en route to its final verdict. Here we look at the Commission’s conclusions and the commitments made by Praxair and Linde in full.

The Commission’s investigation

Following its in-depth investigation, the Commission concluded that the proposed transaction, as originally notified, would have significantly reduced competition in a number of markets in the European Economic Area (EEA).

In particular, the Commission identified competition concerns in the markets for the supply of:

  • Industrial gases
  • Medical gases and related services
  • Specialty gases
  • Helium

For the latter there were concerns both in the worldwide market for the sourcing of helium, and in the national markets for the retail supply of this gas.

Praxair-LInde: Major new helium competitor

Notably, the proposed combination would have reduced the number of significant gas players in the EEA from four to three, creating a new market leader in the European gas industry. The Commission’s investigation confirmed the gap between the four major suppliers (Air Liquide, Linde, Praxair and Air Products) and other competitors in terms of financial and operational capabilities.

In this respect, only the four main players have the engineering capabilities necessary to bid for the largest projects (the construction of complex gas production units on customer manufacturing sites, for example) across the EEA - and access to the few sources of helium existing worldwide - to be competitive.

currency finance euro copyright marian weyo

Source: marian weyo

Other market players only have a regional, national or local presence and lack the operational, technical and financial capabilities to compete on an equal footing with the four majors.

The Commission also found that market entry and expansion in the gas markets is difficult, due to the very high investment necessary to establish a meaningful position in the market. The Commission concluded that the merger as notified ‘would have led to a significant reduction in the number of suitable alternative suppliers’ and potentially to price increases.

The commitments

To address the Commission’s competition concerns, Praxair and Linde offered the following commitments:

  • The divestment to a suitable purchaser of Praxair’s entire gas business in the EEA, including all relevant legal entities, assets and personnel. This divestment covers industrial, medical, specialty gases and helium. It also includes the helium sourcing contracts required to satisfy demand in the EEA.
  • The transfer of Praxair’s stake in SIAD, to Praxair’s current joint venture partner Flow Fin, which will become the sole owner of SIAD.
  • The divestment of additional helium sourcing contracts, beyond those needed to satisfy demand in the EEA, to one or more suitable buyers. This will ensure that the overall helium sourcing volume divested will address competitive concerns at the worldwide level.

The commitments fully remove the overlap between Praxair and Linde’s activities in the EEA, including in all the markets in which the transaction would have otherwise led to a significant impediment of effective competition. With respect to the market for the sourcing of helium, which is global, the commitments ensure that competition is maintained through the divestment of further sourcing contracts.

Based on the parties’ proposals, the Commission will assess the suitability of potential buyers for Praxair’s gas business in the EEA and for the additional helium sourcing contracts.

On this basis, the Commission considers that the proposed transaction, as modified by the commitments, will no longer raise competition concerns and will ensure that competition is preserved on European gas markets in the interest of European customers.

Praxair and Linde continue to aim for completion of their merger in the second half of 2018. The companies are working toward a deadline of 24th October (2018), as dictated by German financial market rules. At the time of writing, the transaction has been given clearance in 17 countries, with final approval in seven countries/regions ( US, South Korea, India, China, Brazil, Chile and Argentina) still pending. There is no closing condition attached to Chile and Argentina.