Discussions with various antitrust authorities have resulted in further indications that merger clearances of the business combination of Linde and Praxair could be subject to requirements more onerous than previously expected.
That’s according to a statement this weekend from Linde, informed itself by the US Federal Trade Commission (FTC) that expectations of further divestiture commitments and prospective purchasers are considered required for a merger clearance.
“Based on ongoing discussions with the FTC and other antitrust authorities and current knowledge, there is in addition a higher probability that a threshold for divestiture commitments, which is to be accepted by each contract party under the Business Combination Agreement, will be exceeded,” the Linde statement explained.
The verdict of the FTC had been long-awaited and considered one of the final hurdles for the mega merger to clear, with the North American gases business understood to be one of the biggest overlaps for the merger.
gasworld Business Intelligence has previously anticipated that Europe and the Americas would be two of the most significant areas of contention for the merger, and had projected the combined entity would achieve sales of approximately $12bn in the Americas in total (based on 2016 estimates) alone – and occupy a combined market share that exceeded that of Air Liquide (28%) by eight percentage points pre-divestment.
As a result, it was estimated that Praxair and Linde would face the largest antitrust pressure in the US and would have to divest of assets that accumulatively generated revenues of approximately $800m in the region in 2016 – around 3-4 times that of the Air Liquide-Airgas divestment package in 2016.
Linde confirmed on 16th July that a consortium comprising of the Messer Group and CVC Capital Partners Fund VII have entered into an agreement to purchase the majority of Linde’s gases business in North America and certain business activities in South America.
The business to be sold generated annual sales of approximately $1.7bn (€1.4bn) and an EBITDA of just over $360m (€305m) in 2017. These include substantially all of Linde’s US bulk business, and its business in Brazil, Canada and Colombia.
The FTC has now expressed expectations of further divestments and purchasers.
gasworld understands there are new suggestions that a political play could be significant in analysis of the merger in the US. The new holding company will be incorporated in Ireland while its principal governance activities, including board meetings, will primarily be based in the UK; though the group CEO (Steve Angel) will be based in Danbury, Connecticut (US) and group corporate functions will be appropriately split between Danbury, Connecticut and Munich (Germany), it could be argued that an effective re-domiciliation to the UK shores goes against the ‘Make America Great Again’ mantra of the Trump Administration.
With the expectations of the FTC relayed, Linde and Praxair are analysing these expectations to assess their scope and to evaluate how they could be implemented to achieve a timely clearance of the business combination.
The discussions with the FTC about the divestiture commitments will be continued in order to achieve a mutually acceptable result. Linde and Praxair remain in a constructive dialogue with the regulators and with each other on the required divestitures.
Both parties have consistently stressed that they are only prepared to go so far to get this deal over the line, suggesting very early on that if divestments over a threshold of €1.1bn in EBITDA or €3.7bn in total earnings had to be realised, then the merger in its current guise may not; they would step back from the brink to consider their respective positions and potentially look to renegotiate the deal.
For all the latest breaking news, views and analysis of the ongoing merger of equals between Praxair, Inc. and Linde AG, stay tuned to gasworld’s Praxair-Linde Zone at www.gasworld.com/praxair-linde-zone.
What does this new development mean for this mega merger of equals?
Well, some might say it was entirely probable, if not expected. Clearance for the deal in the Americas was always considered more of a long game by those close to the deal or analysing it.
gasworld Business Intelligence had previously anticipated the Americas to be one of the most significant areas of contention for the merger, projecting a combined entity with sales of approximately $12bn in the region in total based on 2016 estimates, and a market share exceeding that of Air Liquide (28%) by eight percentage points pre-divestment.
So a sticky wicket of divestments in the region was perhaps inevitable.
Others, however, might see this as a potential death knell for the deal. Praxair and Linde have said from the start that there was a clear threshold at which they would have to reconsider their options. There now appears to be a very real possibility that they will have to go beyond that threshold to see the deal through.
This was always a marathon and not a sprint. The question now is, with a self-imposed deadline of 24th October for completion, how far are Praxair and Linde prepared to go to reach that finish line?