Praxair to Buy NuCO2 for $1.1 Billion to Add Carbonation

Praxair Inc., the biggest U.S. industrial-gases company, agreed to pay $1.1 billion for NuCO2 Inc. to acquire the nation’s largest supplier of beverage carbonation to restaurants.

Praxair is buying NuCO2 from Aurora Capital Group, a Los Angeles-based private-equity firm. The deal is expected to close this quarter and to be neutral or add “slightly” to 2013 earnings, Danbury, Connecticut-based Praxair said today in a statement.

Chairman and Chief Executive Officer Stephen Angel is making his biggest acquisition in more than five years leading Praxair. NuCO2, which provides carbon dioxide for soft drink dispensers and nitrogen for draught beer, will have earnings before interest, taxes, depreciation and amortization this year of about $115 million on sales of $250 million, Praxair said.

“It’s a good margin business and they are paying a healthy multiple for it,” Chris Shaw, a New York-based analyst at Monness, Crespi, Hardt & Co. who rates the shares neutral, said today by phone. “This will help them leverage their current capacity and distribution base.”

Praxair is paying about 10 times this year’s Ebitda for NuC02, its biggest acquisition since the 1995 purchase of CBI Industries Inc. for $1.97 billion, according to data compiled by Bloomberg. Praxair paid a “full price” for NuCO2 because it was sold at auction with “many interested” bidders, Chief Financial Officer Jim Sawyer said on a conference call today.

Shares Rise

Praxair increased 0.4 percent to $110.58 at the close in New York. The shares have gained 1 percent this year.

NuCO2 customers include 99 of the top 100 national restaurant chains that serve fountain drinks, the top 10 convenience store chains as well as Walt Disney World and Yankee Stadium, the company said in a 2010 prospectus for an initial public offering that was canceled in July.

About 85 percent of its sales are to chain restaurants, Angel said on the call. Customers typically enter into five-year contracts that include a monthly service fee regardless of how many beverages are sold, he said.

Praxair, which produces and distributes oxygen, hydrogen, argon and other gases, may extend NuCO2’s business model into Brazil and China, Angel said.

Annual sales will grow by a percentage in the high single digits, with small acquisitions contributing yearly gains of 1 percent to 2 percent, Angel said. A mix of nitrogen and carbon dioxide used to give craft beers a creamy head is the fastest growing segment and has a large potential because it’s a new business for NuCO2, he said.

Building Scale

Profit margins will continue to expand as Praxair cuts costs and builds scale and customer density, Angel said. Praxair plans to increase its gas sales to NuCO2 and will consider replacing some competing suppliers, he said. Cost savings in 2014 will be $15 million to $20 million, CFO Sawyer said.

Praxair plans to finance the deal with about $1.1 billion of debt, with about three-fourths in long-term bonds and the remainder in commercial paper, Sawyer said. The company expects to maintain an A credit rating from Standard & Poor’s Rating Services, he said.

Share buybacks in the near term will be at the low end of the company’s annual target range of 1 percent to 2 percent of shares outstanding, Angel said.

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