So the European Commission (EC) has reportedly rebuffed the original merger proposals put forward by Praxair and Linde, issuing a confidential Statement of Objection (SO) in the latest step of this marathon of a mega merger.
We knew it wouldn’t be a sprint, but to continue the analogy, perhaps we should view this latest development as having turned this into more of a relay – the EC has handed over the baton for the two parties to take forward to the line.
That’s essentially what has happened here, as I understand it, with an SO almost inevitable in a deal of this scale. The EC has not outlawed the deal or said it cannot go ahead, rather it has put revised terms or parameters into the hands of Linde plc, under which it will be happy to sanction the transaction.
Whether Praxair and Linde want to take that forward to the finish line is now the question. No official statement or confirmation has yet been issued by either party; the EC declined to comment when contacted by gasworld.
An SO was issued with Bayer and Monsanto, a relatively recent example of a merger that has previously been cited as being of similar stature and scrutiny as Praxair-Linde.
German chemicals and pharmaceuticals giant Bayer is acquiring US seeds and pesticides producer Monsanto in an approx. $54bn ($63bn) deal reported to be largely geared around the latter’s high-tech, genetically modified seeds business, many designed to produce crops resistant to its proprietary pesticides.
The EC gave the green light for the acquisition in March (2018), only once Bayer had agreed to the conditional divestment of an extensive remedy package which addressed the parties’ overlaps in seeds, pesticides and digital agriculture. An in-depth investigation by the Commission had concluded that the transaction as originally notified would have ‘significantly reduced competition on price and innovation in Europe and globally, on a number of different markets’.
The parties’ subsequent remedies, worth well over €6bn, met the Commission’s competition concerns in full and the deal is now in its closing stages.
In the case of Linde plc, both Praxair and Linde have previously stressed that they are only prepared to go so far to get this deal over the line, suggesting very early on 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 would not; they would step back from the brink to consider their respective positions and potentially look to renegotiate the deal.
Personally, I cannot see that kind of retreat happening; this deal has effectively been in the making for almost two years already, since their first moves were made back in August 2016. A lot of time, effort and resource have already been invested in this, and no doubt the same is true for the potential buyer(s) of assets that have got this far. The merger has also this week been given approval in Brazil subject to the signature of a Merger Control Agreement (MCA), a market previously thought to be the biggest hurdle to overcome in the South America region.
But that’s just my personal opinion and we should remember that we’ve been surprised a few times before with this particular deal, not least when it seemed over almost as soon as it had started – only to be revived again within weeks.
What happens next in these coming weeks will be keenly awaited. With an FTC (Federal Trade Commission) verdict also pending in the US, and a huge divestment package (circa $800m-$1bn) up for grabs, it wouldn’t be out of the question to see Linde plc given another baton to carry forward.
The question now is, how far are Praxair and Linde prepared to go to reach that finish line?