The Strategist

Linde, Praxair to create the world's largest industrial gas manufacturer

08/16/2016 - 14:33

American Praxair is in talks to merge with German company Linde. The transaction, which would continue surge of consolidations in the sector, could result in creation of the world's largest supplier of industrial gases.

Claus Ableiter
Claus Ableiter
Details of the talks are not known. At that, one of the sources warned that the negotiations may end up in vain. Even if the parties agree on merger terms, the transaction can be blicked by antitrust regulators. Market cap of each participants is around 30 billion dollars, and their merger would be one of the largest M&A-transactions in the current year.
Less than two months ago, two major competitors of Linde and Praxair announced merger. The deal is expected to initiate another wake of consolidation in the industry weakened by fall in energy prices and weak economic growth. In May, Air Liquide SA paid about $ 10 billion for Airgas Inc., which allowed the French company to regain first place in the segment of gas supply for production, food industry, health and related fields, with an annual revenue of over 23 billion dollars.
Linde, previously based in Munich, manufactures industrial and medical gases, and builds chemical plants. The company outstripped Air Liquide by buying British company BOC for 14 billion dollars in 2006. If the merger is completed, Linde and Praxair will overtake Air Liquide once again, and their total revenues, excluding possible sale of assets, will exceed $ 30 billion.
However, Airgas transaction made some analysts doubt that antitrust regulators would allow another major merger in this segment.
Praxair used to belong to Linde. It was established as Linde’s American subsidiary in 1907, and was called Linde Air Products Co. According to Linde’s website, the US subsidiary developed so rapidly that surpassed its German parent company by the First World War. Then, Linde Air Products was sold to Union Carbide Corp., which, in turn, detached the company in 1992 and renamed it as Praxair. Union Carbide itself is now part of Dow Chemical Co.
Praxair headquarters in Danbury, Connecticut, and employs 26 000 people in more than 50 countries. The company's website says that Praxair was first in the United States to launch cryogenic production of oxygen.
In late July, Praxair reported that revenue for the 1st half of the year declined by nearly 6% due to unfavorable currency fluctuations, and reached 5.17 billion dollars. The company gave a pessimistic outlook, warning about impact of weak economic growth. Over the past five years, Praxair’s papers significantly lagged behind S&P 500. At that, Linde’s shares also lag behind the broader market.
Linde’s revenue and operating profit for the first six months were affected by currency fluctuations and lower oil prices, which led to weak demand for engineering solutions from oil and gas companies. Linde’s total revenues for the 1st half of the year fell by about 5% to 8.56 billion euros.
If Praxair and Linde complete the merger, it will support the most positive trends in the M&A market this year. Total volume of transactions in US dollars, according to Dealogic, is currently at 22% less than last year's record level, yet already exceeds US $ 2 trillion. This historically high figure has appeared thanks to weak economic growth and mergers of competitors, which is pushing all companies to seek new deals.