Linde Says It’s Reviewing New Merger Proposal From Praxairby and
Combination would create largest supplier of industrial gases
Overture comes two months after collapse of earlier deal talks
The transaction would be a merger of equals, the German company said in a statement Tuesday, without providing financial terms. Danbury, Connecticut-based Praxair confirmed the overture to Linde in its own statement and said there was no assurance of a transaction.
Linde shares surged 6.7 percent to 160.10 euros at 9:04 a.m. in Frankfurt, giving it a market value of 30 billion euros ($32 billion). Praxair advanced 2.9 percent to close at $122.18 in New York with a value of $35 billion.
While both companies see benefits to combining, Linde’s internal issues -- including corporate governance concerns, a management shakeup and a restructuring plan -- may be hurdles, said people familiar with the proposal, who spoke before Linde’s announcement and asked not to be named because the matter is private.
The approach came two months after the collapse of earlier discussions about a tie-up between Praxair and Linde. A deal would add to a wave of consolidation in the industry and attract scrutiny from antitrust regulators. Air Liquide SA, which counts refineries, soda bottlers and welders among its customers, completed the company’s biggest purchase in May when it bought Airgas Inc. of the U.S. for $13 billion.
While Praxair is confident in its current strategy, the company continuously needs to evaluate other strategies as well, Chief Financial Officer Matt White said Tuesday at a Citigroup Inc. conference in New York.
“We as management are paid and required to create value,” White said, in response to a question about a possible deal with Munich-based Linde. He spoke before the statements by Praxair and Linde.
After the earlier talks collapsed in September, Linde announced the departure of Chief Financial Officer Georg Denoke. Maneuvering by Denoke, a 12-year veteran of Linde, contributed to the surprise collapse of the deal, Bloomberg News reported Sept. 13. Chief Executive Officer Wolfgang Buechele won’t stay past April.
“With Denoke reportedly against the deal, his departure might make it easier this time,” Jason Miner, an analyst at Bloomberg Intelligence, said by telephone.
Buyers of industrial gases, however, are likely to object to losing another major supplier, Miner said. The products are typically sold under 10- to 20-year contracts, so the owner of a new petrochemical plant or oil refinery would want as many companies as possible bidding to supply a project.
A combination may require the disposal of businesses generating 2.9 billion euros in sales, with the U.S. accounting for 1.6 billion euros of that amount, Thomas Wrigglesworth, an analyst at Citi, said in a note.
“The costs of announcing a deal were low though the regulatory challenges to a proposed merger remain high,” Wrigglesworth said. “For all the market focus on the situation, we are yet to learn the terms of the merger, the elements of the proposal that have changed, together with the conditions of the proposal.”
A month after Denoke’s departure, Praxair CEO Steve Angel said that he would be willing to resume discussions with Linde. The combination would have a better geographic balance that could leverage the strengths of each company, he said on an Oct. 27 conference call. It would offer “compelling” cost-savings opportunities and a “robust” balance sheet, Angel said at the time.
Having announced a cost-cutting plan in the wake of the failed talks earlier, Linde Chairman Wolfgang Reitzle may struggle to sell the idea to union leaders, who sit on his supervisory board and helped scupper the deal last time around.
The probability of the transaction going ahead stands at just 20 percent, Bernstein analyst Jeremy Redenius said. That’s because such a move by an American company would be an “uncomfortable German corporate first” implying lots of cost cutting, and Linde will likely try to command very favorable merger terms that the financially disciplined Praxair will struggle to accept, he said.