Air Products Bids for China’s Yingde Amid Consolidation Wave

Updated on
  • Target is the biggest producer of industrial gases in China
  • Offer follows Praxair agreement last month to buy Linde

Air Products & Chemicals Inc. offered to buy China’s biggest producer of industrial gases, joining a wave of consolidation led by Air Liquide SA and Praxair Inc.

Air Products, which makes gases such as oxygen, hydrogen and nitrogen, expressed a preliminary, non-binding interest in acquiring Yingde Gases Group Co., subject to conditions. No monetary amount was specified in the Allentown, Pennsylvania-based company’s statement Monday. Yingde said it also received interest from StellarS Capital. The Hong Kong-based company will consider both proposals on Tuesday.

The acquisition would sharpen Air Products’ focus on its core gases businesses after last year spinning off the electronics materials unit as Versum Materials Inc. and selling the performance materials unit for $3.8 billion. Buying Yingde also would help Air Products leapfrog rivals in China after France’s Air Liquide acquired Airgas Inc. to expand in the U.S. and Praxair agreed to buy Germany’s Linde AG to create the world’s largest supplier of industrial gases.

"An acquisition of Yingde would strengthen Air Product’s position in a key growth market," Michael J. Harrison, a Chicago-based analyst at Seaport Global Holdings LLC who recommends buying Air Products shares, said in a note Monday.

Industrial Gases

Industrial gas companies separate products from the atmosphere, providing oxygen to hospitals and steelmakers and argon to welders. Air Products is the world’s largest producer of hydrogen, primarily sold to oil refiners that use it to remove polluting sulfur from gasoline.

Yingde has an enterprise value of about $2.25 billion, including a market value of about $814 million and net debt of about $1.45 billion, according to data compiled by Bloomberg. Air Products could pay $3 billion to acquire Yingde’s estimated $425 million in annual earnings before taxes, depreciation and amortization, keeping the deal multiple significantly below 10 times Ebitda, Harrison said.

The news sent shares of Yingde -- which had been suspended starting Dec. 28 -- soaring 16 percent to HK$3.34 in Hong Kong trading. Air Products climbed 1.3 percent to $146.27 at 11:52 a.m. in New York.

No agreement has been reached with Yingde and there’s no certainty a deal will be concluded, the U.S. company said in the statement. Air Products, with a market value of $31.7 billion, had sales of about $7.5 billion from continuing operations in 2016, according to the statement.

Yingde Gases, which supplies to producers of alloys, electronics and chemicals, is in the midst of a boardroom tussle as a Cayman Islands court in December ordered the company to stop a share placement following a filing by two shareholders. The gas maker had planned to raise about HK$1.2 billion selling new shares to Originwater Hong Kong Environmental Protection Co. The board of Yingde will meet on Tuesday to decide on the expression of interest.

The offer for Yingde follows a string of deals triggered by Air Liquide’s takeover of Airgas Inc. in May for $13 billion including debt. Danbury, Connecticut-based Praxair last month agreed to buy Linde for about 33.9 billion euros ($35.7 billion).

(An earlier version corrected the name of the possible buyer in the sixth paragraph.)

— With assistance by Rachel Chang, Jack Kaskey, Anurag Kotoky, Dong Lyu, and Jonathan Browning

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