Lennart Selander retired at the end of April at the age of 65, after 32 years in the industry. He worked for 27 years for AGA, reaching the level of President and CEO before Linde Group acquired the company in early 2000, where he joined the board of Linde Gas. gasworld has the pleasure of sharing with our readers the insightful story of a man who has served most of his professional life in the industrial gases business.

Lennart, you joined AGA in 1973, but what was the background from where you came?

I was a university professor specialising in welding technology at the Royal Institute of Technology in Stockholm. I was in the market looking for a job and AGA was interested in finding a person to head up their welding application activities, it was more of a coincidence but good timing.

When with AGA – what were your main job experiences/responsibilities?

My first position was in the international headquarters (located at Lidingö), to build up the applications department in the welding and cutting technology area, which most companies in the gas business were doing at the time. Then from that position I went on to become the sales and marketing manager of gases in Sweden. After that I had various Managing Director roles in Colombia (South America), Norway and Germany before I was given regional responsibility for all operations in Latin America, before becoming CEO of AGA.

Other than AGA/Linde, have you been involved with any other organisations?

I have been on both the EIGA and IOMA boards. The EIGA board was the first organisation that I was involved in. On the 1st January this year, I retired as Chairman of the Global committee of IOMA, which is leading the work of harmonising safety standards for the entire world.

The AGA Experience

AGA was first formed in 1904 and developed from its Swedish base to become the fifth largest gas company in the global gases business.

In the 1980s – there was a necessary shift in asset ownership in Europe when the EC outlawed marketing joint ventures of the gas companies. What impact did this have on AGA and did this strengthen or weaken AGA?

I think that the joint ventures between AGA and Air Liquide (in Germany, Holland, Belgium and Luxemburg) served its purpose during the time they existed, but I also think that when the legislation changed in reality it was positive for AGA. By breaking up the joint ventures, AGA could, through 100% owned companies, strengthen it's activities in these important countries.

AGA was one of the first to enter the Central European zone (Poland, Czech and Slovak Republics and Hungry) following the break up of the Warsaw Pact. What were the successes of this move into Central Europe and what were the downsides?

For AGA, (and also Linde), it was a logical step to go into these countries when the borders opened because it was an expansion of our European base and we had important positions there before the Second World War. In some cases we even returned to our old filling plants!

The biggest success was that AGA, through its early move into the Region, established significant or strong market positions in these new markets/countries. Of course there were challenges to overcome in the early days because you have to remember that after the opening up of the borders, the situation was not at all clear as to how Governments would act or manage economies. A step-wise change process took place. We tried to cope with that situation by hiring skilled local people at a very early stage, at the same time bringing in specialists from other AGA units in order to transfer knowledge to the countries. Except for the investments and resources needed during the startup face, there were no downsides.

AGA's move into the former Soviet Union was different. How was this different and what experiences were gained from such a move into what are small markets?

At an early stage in the entry process, AGA decided not to acquire the old existing gas operations (that formerly belonged to AGA) but to invest in green field sites and in modern plants and equipment and build a new business focusing on the industry structure of tomorrow. For AGA this was a way of optimizing the investment (not to invest twice) and not to have to lay off a large number of employees. Other gas players went the other way and acquired the old gas structures sometimes giving them a higher market share at the end.

What did AGA learn from moving into these countries?

First of all it was a one-time opportunity. In history, this very seldom happens that markets that you didn’t consider to exist opens up, and they open up in a way that you can rather rapidly build up a business in them. So, it was very important to take those chances and except the cost and risk and to go into as many countries as possible You had to be flexible and adapt to new rules and new situations over time in order to be successful.

Marcus Storch was a well-respected CEO; when you took over, what changes were needed and how did you manage those changes?

During the second half of the 90's we saw a weakening of AGA's results. There were several structural reasons for that. One was the geography. AGA was historically very much dependent on Scandinavian (specially the Swedish) markets, that during the 90's went through some difficult years and with economic slow down. South America, where AGA had a strong market position, went through big structural changes and was hit very much by the Asian crisis and currency devaluation (especially in Brazil). A second reason was the product mix where the important cylinder business was more and more replaced by bulk and on-site with higher investment pressure. A third reason was the burden from future oriented investments in production capacity made during the first half of the 90's and the new start ups in Eastern Europe. It all added up to a slow down of growth and earnings.

This was the phase that we were in when I took over. To increase growth I set up as a goal to make AGA more customer orientated by establishing a new organisational structure with a stronger focus on the market. To improve performance efficiency, cost cutting programmes were launched.

AGA Tank Form///Linde-AGA

What were AGA's strengths?

The geographical position of gas companies is the starting point in looking at their strengths. AGA had very strong market positions in Scandinavia, some countries in Eastern Europe and in South America. Also, AGA was a very international company with a strong cylinder business. I believe that AGA profited from being a market-orientated company with a strong customer focus that led the way of thinking.

Were there any problems with running your businesses in South America from Sweden?

Of course there is the distance, which incurs travelling times and different time zones. But, that goes for all global companies. You can partly compensate it by good communications. I.T. structures need to be in place that AGA had, so it was no more problematic to run a business in South America than say in Asia or anywhere else.

What went wrong in AGA to put the company in a vulnerable position that lead to a take over?

I don't think that something went wrong short term. I believe that AGA was exposed to certain structures that they had built up over many decades, with geographical positions and other structures, and when those types of structures are not growing or developing as before you get performance problems. During the 90's AGA was hit by a slow down in its geographies and the other things that I mentioned before which was difficult to compensate for short term.

The Linde Experience

In late 1999, the Linde Group made an offer to acquire AGA. This was completed in early 2000. As CEO of AGA at the time, what was the immediate impact on the company – morale wise and business wise?

There were lots of discussions going on before Linde made their offer, in the media and within the company. Some analysts mentioned AGA as a take-over candidate and one of our major shareholders went public with his interest of doing some sort of a structure deal. Martin Ebner, who owned one-third of the capital of AGA, even published his interest to divest certain parts of the company. So, employees were aware that there might be some sort of structure change taking place therefore they were reasonably prepared. But of course when the information comes out it creates, as is usual in the situation of change, uncertainties where people are searching for information. What I did as CEO was to communicate as much as I could in different ways to all employees to describe as openly as possible the process of change, what had been agreed, and what was going to take place. We invested a lot of work in doing that, and when I speak to people today who were involved at the time, the say the changeover went reasonably well. We did not experience any significant negative impact on the business either.

Many analysts believe that Linde paid too much for AGA and that as a result the company has been \\$quot;burdened\\$quot; with the debt since. Do you subscribe to this view?

AGA was a good company. It was one of the big, multinational and global companies. The purchase price had a similar multiple that had been offered and paid on similar acquisitions before and after the AGA takeover, so I think it fits very well into that landscape. Gas companies are relatively expensive to buy but do offer a high quality stable business.

While Linde and AGA were culturally different – what were the strengths that both companies brought to the table?

AGA and Linde's gases division at the time were of a similar size but both with limited global coverage. The most important gain from the merger is that the merged company (Linde Gas) has now got much stronger positions across three important regions (South America, North America and Europe). In Europe, the company has major market positions in 16 countries (now No.2 in Europe), which is an extremely valuable asset for a gas company.

The second benefit that we highlighted before the merger was the individual strengths of both companies. With Linde it was their engineering competence and production of plants and for AGA, its focus on market orientation and also its \\$quot;internationality\\$quot;. To manage its regional business, AGA had to build a good IT network and structure for effective global communication.

The merged business took some time to achieve – why was this and what were the pluses that resulted from this re-structuring?

Firstly, the merger followed the time plan that we had announced from the beginning. To merge two big gas companies the way they were, you need three years to achieve 80% unity and five years to come to roughly 98%. We also announced a two-year cost reduction programme amounting to €100 million savings. This was delivered as planned within the two years. So, I believe the AGA-Linde merger was a success as they fulfilled time and money projections.

Apart from the time it took – were there any negatives from the restructuring process?

I don't believe there were any major negative issues resulting from the merger and feel that the merger resulted in \\$quot;one plus one becoming three\\$quot;. The newly formed company gained the strengths that it was lacking before, market dominance and a greater knowledge pool that was brought in from the two companies. Maybe, things could have been done better than they were as there are limits on how much you can achieve in a certain time frame, but that is normal. But as a structure I don’t see any negatives at all. Both companies were too small to meet the future global challenges. Now we have achieved a platform in which
the future looks bright.

Analysts believe that Linde should have been able to build upon the AGA marketing experience – but to date has failed to really do this, do you agree?

During the merger process it was an important target of the Board of Linde Gas to establish a good mixture of managers from the two companies, and therefore bringing their knowledge and strengths with them. I think we did that and did it well and of course it is then up to those structures as to how efficient they can work and how fast they can develop their strengths and incorporate them into Linde Gas as a total. In my personal opinion we have done very well and there are still more positive synergies to come.

Dr Reitzle has now been in place for 2 years – what changes have you seen within the company since his arrival? Has he had a significant impact on the company?

He started a change process in Linde and has had a significant influence on the company. What you have seen happen to Linde is, among other things, a company that has become much more market and commercially focused and the improvement has been reflected in the gain in share price since Dr Reitzle came on board.

With AGA you moved what was a geographically managed business to three business units – Manufacturing Industries, Process Industry and Healthcare. However, Linde has been organised in a different way and is more supply mode focused with the exception of Healthcare – do you believe this to be the best structure for Linde?

The organisational structure of Linde Gas today is a separate global line of business (healthcare), while the rest of what you can call the industrial gases business is organised into strong regional units. I think it is a structure that supports the business targets of Linde Gas.

Linde Plant///Linde-AGA

Where do you believe Linde goes from here – as a Group and as a Gas Company?

What I can say is that Linde Gas is in a good shape. This is partly due to the strength of the new company that evolved from the merger and also due to the internal initiatives we have undertaken within the company. I'm sure there will be future challenges to deal with and one of them, which not just related to Linde, is the question of growth. Several of our major customer segments are maturing and therefore sales growth of the gas industry will tend to slow down. The very big challenge is to identify the areas where you can grow and develop them. I believe that Linde is well positioned to do that and more importantly, they know how to do it.

The Global Gases Business

The global gases business grew strongly in 2004 (up 12% over 2003 in US Dollar terms).

What are your thoughts about the future of the gas business?

It is a fantastic business with a lot of qualities within the business but one that will also have to face future challenges. I am confident that the industry will be able to face these issues in a positive manner and will continue therefore, to remain one of the better businesses to be involved in.

Where do you see the future growth opportunities?

I think that there are many areas where growth opportunities exist that gas companies are looking into in different ways. I believe that expanding the borders of what you consider to be your core business, expanding into growth areas like healthcare and different kind of services will take place much more. There are many opportunities and the gas industry has a fantastic interface to address all types of human activity in the world, because most people are really customers in some way or another.

Do you believe the industry is becoming more of a service industry rather than a chemical industry as companies move into other areas of activity?

As an industry, we are definitely going more and more into the direction of the service industry but you will still have a big important part of our business, which you can still classify as a chemical one, but yes the trend seems very clear. The chemical side to sell the molecules is of great importance but if you add value to new services that companies go into, over the years it will become an increasing part of the industry but it will not be a rapid process.

Do you believe that more consolidation is needed or achievable in the industry?

The mechanism we have in the market where dominating market positions are paying off very well, where scale of economies due to the capital intensity of the business is important to reduce costs, suggests the need for bigger and bigger units. That drive is there and will always be the situation where bigger units will be considered to be an advantage. Against that of course, is the competition authorities view on how strong a gas company is allowed to be? They are setting limits on how strong a gas company can become which the gas industry must adhere. I believe that whist the opportunity is there, I would expect the gas industry to always try to develop and make possible expansions until competition anti-trust authorities set limits.

Parting Thought

You will leave with many memories of the industry – is there one that sticks out that you would like to share with us?

When I joined the industry, I was rather sceptical that this was an industry that I should work for; I mean what can you do with 'boring' gas cylinders? However, I must say that working in the industry for so many years now, there have always been possibilities for new challenges, and the complexity of the industry is huge, so you learn everyday. So in fact, this has never been a boring industry to work in, as there have been several shifts of paradigm during these 32 years that I have been able to live through. It has always been a moving, changing, adjusting type of industry, and a fascinating industry for a person like me to work in.