An update from the air separation industry, 20160826: World’s largest industrial gas supplier in the making

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This post was last edited by Ameba on 2016-8-26 at 13:28. Recently, there has been a lot of talk about the potential merger between PRAX and Linde~~ Hehe~~ The world’s largest industrial gas supplier is in the process of being formed. Under the pressure of slowing economic growth and weakness in the manufacturing, energy, and commodity sectors, the industrial gas market is also experiencing a wave of mergers and acquisitions. On August 16, German company Linde and American company Praxair jointly confirmed that they are engaged in active negotiations regarding a merger. The merged deal is back on track. The Wall Street Journal reported on August 16 that Linde and Praxair are in preliminary talks regarding a merger; if those talks succeed, it would create the world’s largest industrial gas supplier with a potential market value of over $60 billion. As a global leader in the supply of industrial gases, process gases, and specialty gases, Linde offers a wide range of compressed and liquefied gases as well as various chemical products, serving as an essential partner to many industries. Linde’s three main business segments are gases, engineering, and home healthcare. Praxair is also a leader in the industrial gases sector, and it is the largest supplier of industrial gases in North and South America. It provides customers in various industries with atmospheric gases, process gases, specialty gases, high-performance surface coatings, as well as related services and technologies. Bloomberg notes that Praxair currently has a market value of around $33.7 billion, while Linde has a market value of about $30.4 billion. The merger of these two companies, each with a market value in the billions, will undoubtedly be one of the largest and most notable corporate mergers this year. Although negotiations are still in their initial stage, the market has responded positively: Linde’s stock price rose by 11% on August 16, while Praxair’s stock price increased by 5 percentage points. The New York Times, citing internal sources, reported that the two companies are discussing the possibility of a full merger; this acquisition is expected to generate around $600 million in synergies, and the merger would also help address the issue of overcapacity. Markus Mayer, an analyst at Baader Helvea, noted that in addition to cost savings, this merger will also help to better balance the regional development strategies and product portfolios of the two companies. Linde focuses on developing its large-scale medical gases and engineering business areas, while Praxair emphasizes the prospects in the oil processing sector. Additionally, Linde’s operations are primarily concentrated in Europe and Asia, whereas Praxair has a presence in the United States and Latin America. The decline in international oil prices has caused significant losses to Linde and Praxair. It is understood that Linde’s profits declined in the second quarter; despite strong growth in its core healthcare business, this could not offset the losses caused by a drop in demand from industrial clients. Data shows that Linde’s engineering division experienced a 25% decline in revenue, as most of its clients are in the oil processing sector, providing gas storage systems for refineries and other factories. Praxair also performed poorly in the second quarter, with its industrial gases business in North America affected by weakness in the energy and manufacturing sectors. In a report, German bank Badel Bank stated: “Our analysis suggests that the merger or acquisition is more likely to come from Praxair rather than Linde, as the former has a higher valuation and a stronger balance sheet.” ”In response, Lind said, “Discussions are still ongoing, and no specific outcomes or agreements have been reached yet.” ”In fact, the two companies had previously approached each other regarding a merger, but negotiations were suspended after Linde issued profit warnings in October and November 2014. Just after Air Liquide of France acquired the U.S.-based Airgas for $10.3 billion in May, Linde and Praxair resumed negotiations. With that acquisition, Air Liquide became the second-largest industrial gases company in North America, right after Praxair, which made Linde and Praxair, both seeking to hold the leading position in the industry, unable to remain idle any longer. Bloomberg notes that if Linde and Praxair manage to merge, they will undoubtedly surpass Air Liquide and become the industry leader with an estimated annual revenue of over $30 billion. Regulatory scrutiny However, even if the negotiations between Linde and Praxair go smoothly, they will still face intense antitrust scrutiny. The two companies said in a statement that they discussed plans to sell and divest assets in order to address potential antitrust scrutiny. According to Reuters’ analysis, although the two companies are complementary in terms of their business operations, many large-scale mergers and acquisitions have been rejected due to antitrust concerns on the part of regulators; not to mention that regulators cannot tolerate a large number of corporate mergers and acquisitions taking place within one year. In April of this year, Praxair acquired 5 small industrial gas companies, which together generated revenue of over $40 million in 2015. An article in The New York Times states that a merger between the two would challenge the regulatory authorities’ tolerance threshold for mergers and acquisitions that could bring about changes in the industry; after all, it would alter the current balance of power in the industrial gases market, with four major players becoming three – and this is exactly what regulators are most wary of. Data compiled by Bloomberg shows that the world’s four major industrial gas suppliers, in no particular order, are Praxair, Linde, Air Liquide, and Air Products and Chemicals Inc. Citing Seth Bloom, who once worked in the antitrust division of the U.S. Department of Justice, The New York Times said: “Although this merger has not yet taken shape, just thinking about it is enough to draw the attention of antitrust authorities.” ”He pointed out that the acquisition bid by Halliburton, the world’s second-largest oil services company, for Baker Hughes, the third-largest such company, was aborted due to antitrust concerns – a precedent set by Linde and Praxair. Bernstein noted in a report that the four major industrial gas suppliers account for over 75% of the market share, while the entity formed by the merger of Linde and Praxair holds around 40% of the market share. The latest annual data from industry news provider Gasworld Business Intelligence shows that Air Liquide holds a 29% share of the U.S. industrial gases market, Praxair around 21%, Linde about 15%, and Air Products Company approximately 14%. Once Praxair and Linde merge, they will create a giant that will hold 36% of the market share in the U.S ； The same is true in Europe: Air Liquide holds about 32% of the market, Linde around 30%, Air Products about 13%, and Praxair about 7%. Is this situation not enough to alert regulators on both sides of the Atlantic? Peter Spengler, an analyst at the German Cooperative Bank, said that European regulators will examine this merger closely, and the United States and China will also pay close attention to anti-monopoly issues. The only thing that is certain is that the negotiation efforts by Linde and Praxair could further drive the wave of industry consolidation.