There is an expression ‘what goes around, comes around’ and that is very true related to the breaking news of a potential merger between Praxair, Inc. and The Linde Group. Here, gasworld Business Intelligence explores the history and potential future between the Tier One players.
The roots to this date back to World War I when the German company Linde AG were forced to exit the US gases market – having entered in the early 1990s. Following the War, Linde Air Products assets were confiscated and sold Union Carbide in 1919 – which included the rights to use the Linde name in the US. Since 1963, the industrial gases arm of Union Carbide was known as “the Linde division”. It was not until 1992, when Union Carbide decided to spin off the gases division, that Praxair was formed. It was only in 1998 that the Linde Group bought back the licence to use the Linde name again in the US.
However, the two companies have been serious competitors and this was first seen in 1999, when Praxair and BOC began merger talks – that quickly failed – but lead Praxair to move into merger talks with Swedish gases company, AGA. Worried that his company would be left behind in the growing global gases business – the CEO of Linde Group made a cash offer for AGA to counter the merger with Praxair – Linde came out top and in 2000, the deal was completed.
Since the spin off in 1992, Praxair has been and remains the most performance driven gases company and not only improved its financial performance through the 1990s, but in the first decade of 21st century – was the leading performer in the industrial gases space.
Interestingly, in 2004/5, there was a lot of speculation related to M&A activity within the industrial gases business – varying from the desire of BASF to acquire BOC to other companies looking to buy Linde Group. It would be fair to say at the time the Linde Board had a choice – “buy or be bought”. The Linde Group opted to acquire, and having researched the options, agreed in early 2006 to make a friendly approach to acquire the BOC Group. This was subsequently completed in September 2006.
So what now? Firstly, our industry faces continued challenging times – with low growth forecast for the next few years, low energy costs, lower project activity to name a few. Praxair’s shares have come under pressure of late – analysts preferring the turnaround success of Air Products to the performance of Praxair. The Linde Group have essentially fully integrated BOC operations and that of its more recent acquisition, Lincare. However, the time could be right following the recent move by Air Liquide to acquire Airgas. Following the recent appointment of Professor Wolfgang Reitzle as Chairman of the Linde Group – analysts know he is a deal maker from both his “automotive days” and more recently with the Linde-BOC deal.
Can such a deal be done – James Barr, Senior Business Analyst at gasworld’s Business Intelligence Unit says “the deal would present some significant anti-trust issues in some regions/countries around the world”. Having recently completed an assessment (report) of the Air Liquide-Airgas deal, in which 18 ASUs, 6 CO2 plants and few other business assets needed to be divested, Barr continues “the US would present one of the largest hurdles for the merger to happen. Particularly at the onsites level but also across some regions in the merchant gases business as well”
The facts speak for themselves. The Linde Group would have gas sales of around US$16bn worldwide compared to Praxair’s US$10bn. Combined this would give them 33% market share (assuming no divestments). However, Barr commented that there would be divestments made in North America, parts of South America, in Europe and also in Asia. The merger is possible but it would be complicated” he stated.
From a profitability stand point, Praxair has much better figures and performance. But does this present opportunities for the shareholders? Initially this would be dilutive to Praxair, but accretive to Linde.
The largest anti-trust pressure would come in the US – where their combined market share would exceed Air Liquide’s current market share of 28% by 8 percentage points (assuming no divestments). However, the FTC would have regional issues across the USA which could result in some significant revenues being divested.
However, there are other complications associated with this potential merger to take into consideration. Firstly, the FTC would look at who would have the capability to acquire the divestments, and can a competitive market be maintained in the US? Secondly, there is a strategic difference in Homecare – with Praxair having divested in Homecare and Linde having very much invested – both in the US and in Europe. Thirdly, what would happen with Linde Engineering – to the Linde Group this is core and part of the company’s DNA whereas Praxair have outsourced much of its plant build and engineering capability.
Referring back to Barr, gasworld Business Intelligence, he went on to say “anti-trust issues would also be presented in South America, especially in Brazil and Chile, but South America on the whole has less stringent anti-trust conditions. In Europe, there would be issues related to Scandinavia – Praxair having taken over Linde’s main competitor Yara in the sub-region and also in Germany, where Praxair gained from the Messer deal back in 2004.”
So the breaking news, hitting the wires this morning could unleash another exciting period for the industrial gases sector – at a time of concern for growth. Is the deal possible, the answer has to be yes, but with some significant complications. Does it make sense, well yes, if you take a company with leading performance pedigree and combine that with the largest worldwide presence. Also, the merged entity could leverage off the in-house engineering capability as well. Will this be a consolidation too many for the anti-trust authorities – time will quickly tell.
US industrial gases primer report
gasworld Business Intelligence has country reports on 65+ countries around the world and also has an updated US Primer Report on the gases business. For more infomation, please contact email@example.com