It’s on: Board approvals and conclusion have been reached in a definitive Business Combination Agreement for the mega merger of equals between Praxair, Inc. and The Linde Group, with only antitrust approval and legal due diligence standing between the deal and a 2018 completion.
The merger will change the face of the global industrial gases business, bringing together two leading companies in the industry and leveraging the proven strengths of each.
The transaction will unite Linde’s long-held leadership in technology with Praxair’s renowned operational excellence, creating a global leader in the process. Based on 2016 reported results, it would 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).
In fact, gasworld Business Intelligence previously projected a combined global market (gases and services) share of 33%, pre-divestment.
The union is also expected to create considerable value, resulting in approximately $1.2bn (€1.1bn) in annual synergies, driven by scale benefits, cost savings and efficiency improvements.
But this is about more than just headline numbers alone. This is about positioning the company to be at the forefront of the evolving industrial gases sector, across five key objectives that – gasworld understands – it is felt are required to be met to truly succeed in the future.
Here we take a top-level look at those five objectives to understand the rationale behind this mammoth merger of businesses.
1. Expanding geographic presence
Firstly, there are significant geographic advantages at play, even in the event of expected divestment activities.
The merger would enable the combined company to leverage Linde’s strong position in the largely fast-growing Europe, Middle East and Africa (EMEA) and Asia-Pacific regions with Praxair’s strong position in North, Central and South America – establishing both a balanced and distinct global presence.
2. Creating and exploiting growth trends
Secondly, and very much linked to that balanced position worldwide, is the capability to create and exploit growth trends going forward.
Attributes Linde brings to the merged company include its aforementioned extensive know-how in the field of producing gases and their application, as well as environmentally friendly and climate-friendly energy generation and conversion and its global commitment to the healthcare sector, which is driven by demographic trends.
For its part, Praxair is of course in an inherently strong position in the oil and gas producing and processing industry along the US Gulf Coast, a substantial growth area both now and (likely) in the future.
Taken together, the two companies would therefore occupy an important position in many end-user markets, regions and products and be very much at either the forefront of – or driving – new waves of growth.
3. Ensuring financial stability and flexibility
Thirdly and perhaps most obviously the merger of Praxair and Linde will generate significant cost, revenue and capital synergies.
As already described, the expected synergies driven by the benefits of scale, cost savings and efficiency improvements are projected to be in the region of $1.2bn per year.
In the medium term, the strong cash flow of the merged company will be a significant advantage and, it is thought, will firmly set the new industry standard for investment in products and projects. This will enable Praxair-Linde to engage in more mega projects in its customer industries or tackle major transformational projects, for example. Expect game-changing CAPEX plays from this entity going forward.
4. Driving forward innovation
Linked to both its new spending power and the leveraging of technology and productivity strengths is the fourth core objective – to open up whole new windows of opportunity in innovation.
Innovation or R&D spend across the gases industry per sé has very much been questioned in recent years, perceived to have been gradually dwindling or found wanting, so any injection of vigour in this area would be a welcome move for many.
With its combined resource and capabilities, Praxair-Linde would be able to really get behind R&D in a big way – and very much sees this as key to creating and exploiting new waves of growth; the company aims to open up completely new opportunities in the area of R&D.
Innovation has always been a cornerstone for Linde, and the company can trace its origins back to the groundbreaking liquefaction of atmospheric air by Carl von Linde at the turn of the 20th century. Meanwhile, Praxair is known for being an industry leader in achieving very high productivity levels. Together, the new entity would be able to bring more innovations to the table – from the fast-emerging trend for digitisation and big data to remote maintenance and monitoring of customer plants with the help of artificial intelligence (AI).
The effects of this could be beneficial for the industry as a whole, with such investment potentially resulting in innovations filtering down through the market in a much more cost-effective way.
5. A shared performance culture
Last but certainly not least, the benefits of shared performance culture are not lost on Praxair-Linde.
Naturally, Praxair and Linde both have common roots and shared values and visions. In addition, both companies believe in the importance of encouraging personal responsibility and entrepreneurship among their employees and fostering talent.
Linde also stands for comprehensive solutions expertise, engineer-driven inventiveness, and process reliability, while Praxair is widely renowned for something of a pragmatic approach and strong productivity.
A merger would therefore bring together the best of both worlds for employees, the company, balance sheets, and shareholders moving forward – creating value for all involved.