The much anticipated, multi-billion-dollar merger of equals between Praxair, Inc. and The Linde Group has been agreed in a $70bn deal that unites two of the biggest players in the industrial gas industry. But what impact will the union truly have on a global stage?
The merger will create the most powerful company in the industrial gas industry, comfortably eclipsing Air Liquide’s $13.4bn acquisition of Airgas in 2015/16. Combined, the new company will hold a current market value in excess of $70bn (€66bn).
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 takeover of Airgas last year. It currently holds approximately 25% of the global market, according to gasworld Business Intelligence.
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.
Based on 2016 reported results, the combination will create a company with pro forma revenues of around $29bn (€27bn) – prior to adjustments, potential divestitures and regulatory limitations.
In a historic press conference at Linde’s HQ in Munich today, present Linde CEO Professor Dr. Aldo Belloni identified, “As with any merger of this size, we will have to divest business units in areas where our position is too strong. Linde, after successful acquisitions of both AGA and BOC, will be able to handle such divestitures in a smooth and professional manner.”
“We believe that this is well worth the effort in every aspect to pursue the transaction and we have full confidence in effectively managing the process.”
In total, the company will need to gain approvals from 25 anti-trust authorities worldwide, including the European Commission (EC) and the Federal Trade Commission (FTC). Senior Business Analyst James Barr explained, “The key to a successful merger will be getting anti-trust approvals. I expect the required divestments will attract both strategic players (industrial gas companies) and private equity firms.”
“Linde, after successful acquisitions of both AGA and BOC, will be able to handle such divestitures in a smooth and professional manner”
Professor Dr. Aldo Belloni, Linde CEO
The leaders of the company remained expectedly tight-lipped on the subject of potential divestment packages. It was confirmed, however, that the company has no intention of divesting Linde’s historic production site in Leuna, Germany.
According to gasworld Business Intelligence, divestments with annual revenues of around $2.5bn are expected to take place on a global scale, featuring a mix of the two companies’ assets and business. Barr estimated that the Tier One players’ combined gas and services businesses (excluding engineering, its Surface Technologies business and non-gas healthcare) reached just under $24bn in a global market worth $71bn in 2016.
But where exactly are the overlaps and what regions will be affected the most? Most importantly, what will the industrial gas world look like once the merger is finalised in H2 2018?
Regions in focus
The Americas region is likely to be the most affected area, with Belloni describing potential divestments there as a “playground” this morning.
In total, the combined entity would achieve sales of approximately $12bn in the Americas. The majority of the divestments are expected to occur in the Eastern half of the US, where both companies run substantial operations.
Barr said, “There is a possibility that divestments will occur in Canada, and in four or five South American countries. We expect most of the divested assets to stem from Linde’s current operations.”
It’s the opposite story in Europe, where divestment packages are expected to consist of Praxair assets.
The Europe, Middle East and Africa region will be the second most prominent area to see divestiture deals. Once combined, the group would achieve sales of $8bn across the territories, with divestments anticipated to be predominantly confined to North Western countries, including Germany, the UK and Scandinavia.
With a total of $6bn worth of sales pre-divestment, Praxair and Linde’s growing presence in Asia-Pacific shouldn’t be drastically affected once the merger is completed.
However, Barr believes that the possible divestiture package will mainly feature Praxair assets in India and China.
So, will it be a true industrial gas world conquest? The potential divestment estimates would see the combined entity hold a global market share of around 30% - indeed creating a new gases market leader by around 5%.
As Wolfgang Reitzle, Chairman of the new holding company’s board, reinforced, “We have a huge opportunity now to build one of the most fascinating industrial companies worldwide – one that’s fit and ready for any storm ahead.”
“The world is an uncertain place, but Praxair-Linde will be the big boat to float the stormy seas of the world.”
First Linde/BOC, then Air Liquide/Airgas; will Praxair-Linde be the last hurrah in terms of major M&A activity in the industry? Barr doesn’t think so.
“The smaller Tier Ones, such as Air Products, Messer and TNSC, will now be looking to catch up. I think the events of the past 18 months tell us that no merger or acquisition is totally out of the question,” he concluded.