With the business world and the industrial gases industry alike awaiting news of further divestment packages, and just how far Praxair and Linde are prepared to go in under to see through their merger of equals, what remains to be decided in the weeks ahead?
Praxair and Linde are working toward a deadline of 24th October (2018) for completion, as dictated by German financial market rules.
The metaphorical tick of that clock reverberates ever louder as the days and weeks go by, with much still be decided or at least announced with regard to the specifics of the deal.
The biggest question is clearly whether the deal will go ahead at all, but that aside, here we take a very brief look at what remains to be declared.
The Messer Group – in partnership with CVC Capital Partners – has entered into an agreement to purchase the majority of Linde’s gases business in North America and certain business activities in South America.
This may not be enough to see the deal through in the region, however, with the expectation from the US Federal Trade Commission (FTC) that more divestments will be required before they give it their blessing.
This much we know. What hasn’t yet been revealed, is exactly what assets will be sold in the US (Messer-CVC will pick up “substantially all of Linde’s US bulk business” as well as its business in Brazil, Canada and Colombia), or what the intentions of Praxair and Linde will be with regard to the FTC’s demands.
Reports suggest even more assets could be sold to Messer as a result of these moving goalposts, but this is yet to be confirmed. The wording of the FTC also appeared quite carefully constructed – with “expectations of further divestiture commitments and prospective purchasers.” Does this hint at another player having to be found for these additional assets, in the interests of a competitive market?
The deal has already satisfied a closing condition in Canada and been given unconditional clearance in Mexico.
We now know that TNSC (Taiyo Nippon Sanso Corporation) is to acquire the majority of Praxair’s European businesses in a deal for €5bn in cash consideration.
As with Linde’s assets in the US to be acquired by Messer, we don’t actually have the specific details of what that package includes, other than “industrial gases businesses in Belgium, Denmark, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and the UK.”
What isn’t yet known is what happens to the remainder of Praxair’s businesses in the region. The company has a number of joint ventures across Europe, for example – could these be the subject of a buyout?
Who could be the buyer waiting in the wings for those remaining assets, assuming they have to be divested? And will the EC give the deal its final approval?
Little appears to have been declared regarding the merger overlaps in the Asia-Pacific region and the required antitrust approvals.
gasworld Business Intelligence has previously cited India, China and Thailand as three significant areas of overlap in Asia in its Global Primer Report, which covers each region of concern regarding the Praxair-Linde merger.
Linde and Praxair are the current leaders in the Indian industrial gas market and would have a resultant market share of more than 40% when combined. This had been thought likely to cause issues with the Competition Commission of India, especially due to the existing supply scheme plants from both parties that also feature liquefiers.
As of today, the deal still awaits clearance in India.
In Thailand, any anti-trust issues that could arise are thought likely to revolve around the production of carbon dioxide (CO2). Praxair’s operations in the country are limited to the CO2 business, with the company operating one of the largest liquid CO2 (LCO2) production complexes in the world in Map Ta Phut. Linde has a slightly larger presence in Thailand than Praxair, operating several ASUs, onsite nitrogen plants and a liquid CO2 plant, also in Map Ta Phut.
China has reportedly become more of a sticky issue than might first have been imagined. gasworld Business Intelligence has previously projected that the combined entity of Praxair and Linde, including both companies’ respective joint ventures, would hold a market share that was unlikely to pose any anti-trust issues at a national level in China. The main issues that could be posed in the Chinese market exist on a more regional level, where there may be areas of production overlaps and local monopolies, it explained.
As of early August, however, gasworld understood that the merger could be the subject of local competition concerns – with the latter observation of local overlaps appearing to be at the heart of the issue. It’s thought that the merger could be under extra scrutiny as domestic independent players in China potentially express their concerns and stake their claims for any assets under question.
Linde confirmed to gasworld that it still awaits approval in China.
The line in the sand
Ultimately, all of the above boils down to where the line in the sand is as far as Praxair and Linde are concerned, respectively.
The recent ruling of the FTC pulled that line into question; both parties had been clear 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.
But with the FTC expressing that further divestments are required before it gives clearance for the merger in the US, will Praxair and Linde cede to these demands or will they go back to the drawing board and look to renegotiate the deal?
As of today, this mega merger of equals has been given clearance in 16 countries, Linde confirmed to gasworld this morning, with final approval in eight countries/regions (EU, US, South Korea, India, China, Brazil, Chile and Argentina) still pending. There is no closing condition attached to Chile and Argentina.
The question for Praxair and Linde now is, how far are they willing to go in the US, or any of the above regions, to seal this deal?