South Korea’s antitrust regulator has ordered Linde AG and Praxair AG to sell assets in order for their proposed mega-merger to go ahead.
Praxair and Linde are working towards a deadline of 24th October for completion of the $70bn merger, as dictated by German financial market rules, to create the world’s largest industrial gas supplier.
A foreign-based company is required to get approval on mergers if its annual sales in South Korea are over 20bn won ($18.4m).
The Fair Trade Commission (FTC) ordered that one of the two Tier One companies should sell its entire assets related to the on-site or bulk supply of oxygen, nitrogen and argon gases in South Korea.
Linde needs to sell its excimer laser-related assets in New Jersey, or Praxair should sell its excimer laser gas-related assets in South Korea.
For the merger to go through, Linde and Praxair must also now get approval from the US Federal Trade Commission (FTC).
On 30th September, the Chinese antitrust approved the proposed merger.
Another day, another divestment demand…
Analysis by Rob Cockerill, Global Managing Editor
This deal appears to be pushing Praxair and Linde to the brink in their pursuit of its completion.
With this latest development, the two companies will have to divest yet more assets. Whether the Korean market was expected to be a hurdle, we don’t know. Had the two companies had factored in divestments here? Maybe.
But when more extensive ‘remedy’ packages had to be agreed to smooth the path to approval in Europe, and with the FTC demanding far more onerous divestments than expected in the US market, news of more divestment requirements in Korea – with just three weeks to go until their 24th October deadline – is surely not welcome news.
According to data from gasworld Business Intelligence, neither party is the leader in the South Korean market. Air Products held the leading market share in 2017 at 24% (equating to revenues of $441m). Domestic player Daesung Industrial Gases was the second-largest company in the country and very much in close attendance, with 22% market share.
Then came Praxair, commanding a market share of 18%, whilst Linde accounted for a distant fourth-largest slice of the pie at 13%. Clearly, the issue here is that post-merger and pre-divestments, the combined business would usurp those before it with a projected market share of around 30%.
Having said that, the Korean market had not previously been suggested as a potential red flag where antitrust approvals was concerned, and such a figure is perhaps not quite as overt as the overlaps in other regions (think, combined share of 40% projected in India, for example). Note, the reference to divesting excimer laser gases business above all else.
Is this a deal-killer? Unlikely. Clearly, neither party will walk away from the deal now, despite it exceeding their long-held threshold for divestments, but one has to wonder if there is some sense of frustration in the corridors of power in Connecticut and Munich, respectively.
What they will no doubt be reminding themselves is that it’s a price worth paying. The logical option would be to divest the smaller business in Korea and it appears they have time on their side to find the right bidder; no mention has been made of the requirement for or identification of an upfront buyer. The benefits of taking the hit and pushing on as planned? Shareholder value growth, an expanded footprint across the globe, a strong cash flow position and financial flexibility, leveraged strengths, and of course, that status as the single biggest industrial has player globally.