Praxair, Inc. and The Linde Group have signed a definitive agreement on a merger of equals worth $70bn, in a deal which sees two of the biggest players in the global industrial gases business come together.

 

The deal promises to change the face of the industry for the second time in as many years, following Air Liquide’s mega acquisition of fellow Tier One company Airgas, Inc. in 2015/16.

Air Liquide became the leading player in the North American market, while complementing global leadership positions in Europe, Africa/Middle East and Asia-Pacific when it completed the $13.4bn takeover of Airgas on 23rd May 2016.

The $70bn merger of Praxair and Linde, however, will lead to the combined entity that usurps Air Liquide as the leading force in the global gases business. gasworld Business Intelligence estimates a combined market share of 33% pre-divestment.

In a statement, Praxair described the merger as a “compelling and transformative opportunity,” while Linde pointed to a significantly enhanced platform for global innovation.

Steve Angel, Praxair’s Chairman and CEO, who also becomes CEO of the new holding company, commented, “This combination is a compelling and transformative opportunity to create a world-class leader in the industrial gas industry. The combined company will give us the opportunity to leverage the individual strengths of both companies across a much larger global footprint and enhance our ability to drive innovation and growth.”

Echoing those sentiments, Prof. Dr. Aldo Belloni, CEO of Linde, added, “This merger is a once-in-a-lifetime opportunity to form a great global industrial gas company poised to deliver value for customers, employees and shareholders alike. The new company is well positioned in all key markets and regions and can build on its exceptional R&D expertise.”

Based on 2016 reported results, the combination will create a company with pro forma revenues of approximately $29bn (€27bn), prior to any divestitures, and a current market value in excess of $70bn (€66bn).

The union

The new holding company launched a public exchange offer to the shareholders of Linde in December. The transaction and the public exchange offer was based on a 50:50 valuation ratio of Linde and Praxair, with the new holding company to be listed on both the New York Stock Exchange (NYSE) and the Frankfurt Stock Exchange.

Likewise, membership in the management board of the combined company will be split 50:50 between Linde and Praxair, with current Praxair Chairman and CEO Steve Angel becoming CEO of the new holding company. Current Chairman of the Supervisory Board of Linde AG, Professor Dr. Wolfgang Reitzle, will become Chairman of the new company’s Board.

The new holding company will be incorporated in Ireland while its principal governance activities, including board meetings, will primarily be based in the UK. Corporate functions will be split between Danbury, Connecticut and Munich, Germany accordingly, to help achieve efficiencies for the combined company.

The merger of Praxair and Linde brings together two leading companies in the field, leveraging the proven strengths of each; it unites Linde’s long-held leadership in technology with Praxair’s efficient operating model, creating a global leader.

The combined company is set to enjoy strong positions in all key geographies and end markets, and create a more diverse and balanced global portfolio, while approximately $1.2bn (€1.1bn) in annual synergies are expected, driven by scale benefits, cost savings and efficiency improvements.

The deal is now subject only to the approval of competent regulatory authorities, including first and foremost the Federal Trade Commission (FTC) and the European Commission (EC).

James Barr, Senior Business Analyst for gasworld Business Intelligence, affirmed his expectation that divestments are inevitable, “The deal will almost certainly attract the attention of the FTC and the EC. Before any likely divestments, the combined Praxair-Linde company would hold a global market share of 33%, making it the leader by eight percentage points. On a regional level, the company would have market share well in excess of 40% in some countries, indicating that a substantial divestment package maybe required in those regions.”

“We have calculated that Praxair-Linde may have to divest of up to $1bn worth of business in the US, which is about four times that of what was witnessed in the Air Liquide-Airgas divestment package,” he added. “Potential overlaps are not just found in the US – there are a number of areas within Europe, such and Germany, the UK and Scandinavia, where both Linde and Praxair have important operations. Other divestment opportunities may be witnessed in markets such as India, Thailand and China.”