Linde Likened to ‘Game of Thrones’ After Two Tumultuous Days

  • German gas supplier urged to win back investor confidence
  • Analysts left wondering whether Praxair deal can be revived

In the aftermath of Linde AG’s one-two punch this week of a scrapped mega-deal and top executive departures, analysts picking over the wreckage are likening the staid German industrial-gases company to a drama-packed fantasy epic.

In a note published Wednesday entitled “Game of Thrones,” DZ Bank AG analyst Peter Spengler wrote the failed merger and subsequent exit of the CEO and CFO, along with two profit warnings, mean Linde “has to improve its communications and credibility to win back investors’ confidence.”

Stock market analysts have weighed in fast and furiously about the Munich-based supplier’s two tumultuous days Monday and Tuesday, during which a planned merger with U.S. competitor Praxair Ltd. fell apart, Chief Financial Officer Georg Denoke was ousted and Chief Executive Officer Wolfgang Buechele said he wouldn’t seek to extend his contract beyond April. While Linde has had its share of excitement over the years -- it orchestrated multi-billion purchases and sold off major assets including forklifts and refrigeration technology -- the company never quite captured the imagination of the investment community, the public or the political elite in the way it did in the last 24 hours.

Revisit Merger?

Linde and Praxair had been in talks since mid-August on a combination that would have ranked as the biggest deal so far in a wave of industry consolidation triggered by French rival Air Liquide SA’s takeover this year of Airgas Inc. for $13 billion including debt.

For details about the failed deal and executive departures, click here.

Wolfgang Reitzle

Photographer: Guenter Schiffmann/Bloomberg

Foremost in investors minds Wednesday was whether the management shuffle at Linde, to be orchestrated by Supervisory Board Chairman Wolfgang Reitzle, will pave the way for a renewed push for a deal in the relatively consolidated industrial gases sector.

Linde could revisit a merger with Praxair down the road because the strategic rationale remains intact, people familiar with the matter have said. While no decision has been made, any renewed attempt could come after a cooling-off period, said the people, who asked not to be named because the talks are private. The companies had agreed to most of the terms before negotiations fell apart, they said. For his part, Reitzle doesn’t see another attempt in the near term, he told Handelsblatt in an interview on Wednesday. A spokesman for the company has declined to comment beyond its statements.

A deal with Praxair is “once again a possibility but not, in our view, a given,” Merrill Lynch analysts including Stephanie Bothwell wrote in a note. Any deal would require approval from German unions represented on the supervisory board and this is “not an easy hurdle to cross.”

Weighing on a future effort will also be political considerations. The government of Bavaria, the region where Linde is based, pushed to keep the local base and secure jobs. The merger should have been dealt with as one between equals, which seems to have failed, Bavarian Economy Minister Ilse Aigner said in a statement. Linde may now look for new partners, she said.

Utmost in Reitzle’s mind will be to fill the positions of CEO and CFO. A replacement for Buechele could come from within the company with executive board member Bernd Eulitz the most likely candidate and another member Christian Bruch also in the running, according to Baader Helvea analysts, who also raise the possibility that the changes could allow Praxair to move to take over Linde.

Engineering Weakness

Outside of deal-making, Linde’s strategic options are also coming under scrutiny as the company’s engineering division faces continued weakness in energy markets that has curbed investment in new industrial gas installations like refineries. The shares dropped 1.2 percent to 143.05 euros at 4:55 p.m. in Frankfurt.

Upheaval at the company carries “a short term risk of softening operational excellence and earnings momentum,” said Commerzbank analyst Lutz Grueten.

Second-quarter profit dropped as growth in gases supplied for health care failed to offset a fall in demand from industrial customers. Following profit warnings last year, Linde has stuck with a broad outlook for 2016, saying that both sales and group operating profit could rise by 4 percent after currency effects, although they could also fall as much as 3 percent due to challenging markets.

Radical structural changes like the shrinking of the engineering division or selling of the U.S. health-care business “seem unlikely” because Reitzle backs both, according to Barclays analysts including Sebastian Satz. The focus should be on “getting more out of the existing asset base.”

— With assistance by Birgit Jennen, Weixin Zha, Sheenagh Matthews, Chiara Remondini, and Aaron Kirchfeld

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE