Commodities

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Piecing together a merger of equals is always delicate and nobody knows that better than Wolfgang Reitzle. As chairman of Swiss cement-maker Holcim, Reitzle was instrumental in preventing a $35 billion tie-up with French rival Lafarge from falling apart in 2015 amid a row over the share exchange ratio and who should be CEO.

Now back  at Linde, where he served for more than a decade as CEO, Reitzle's luck has run out. The German industrial gas company said Monday it was abandoning discussions with Praxair. Arguably, he should have known better than to pursue a merger with a U.S. rival whose revenues were little more than half Linde's. The trade-offs needed to get a deal done were always going to provoke ill feeling. 

Merger of Unequals
Piecing together a 50-50 merger was always going to be challenging
Source: Bloomberg
nb market cap is on eve of the talks first becoming public

A 50-50 deal was only possible because Praxair is much more profitable than Linde, a deficiency the German company will now be under even more pressure to address. Remarkably, Linde may well have offered enough concessions to satisfy Praxair, but forgot to make sure it had enough support for the deal within its own ranks.

According to Bloomberg News,  Linde CFO Georg Denoke and labor representatives had concerns. Reitzle might wish it otherwise, but big strategic decisions in Germany require the support of a supervisory board half-filled by employees.

In fairness to Reitzle, trade unions can be an unpredictable bunch. However, it's been rumored in German media for months that Denoke and CEO Wolfgang Buechele didn't see eye to eye. As chairman, it's Reitzle's job to control the management board; pursuing a deal without having fixed that schism was reckless. Investors who bet on the deal being consummated are right to be furious.

What happens now? Denoke's position has been seriously weakened and Buechele, who's overseen two big profit warnings since taking over in 2013, may not want to count on a long stay either. Bloomberg News reported that Reitzle was claiming the role of chairman of a combined Linde-Praxair, but Praxair boss Stephen Angel would have been CEO. That's hardly an endorsement of Buechele, who was to become president, according to Bloomberg News.

Ultimately, though, the talks' failure at an early stage is for the best. Cutting the number of global industrial gas companies from four to three would have been benefited shareholders but not customers, as we've argued before. 

Concentrated Gases
The top four control more than 75 percent of the industrial gases market
Source: Bernstein Research
nb the data is from 2014. We combined Air Liquide and Airgas' market share but Air Liquide is having to divest some U.S. assets to get the takeover approved.

After an 8 percent share price slump on Monday, Linde's enterprise value stands at less than 9 times trailing Ebitda. Praxair, Air Products and Air Liquide all trade on about 13 times. Linde must now spell out how it plans to boost earnings as a standalone company. That will be a tough job for anyone, given weak global demand. But after today there are understandable questions about the current leadership.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net