By Robert Wall
Industrial-gas giants Praxair Inc. and Germany's Linde AG concluded a two-year courtship Tuesday, agreeing to join forces to create the industry's biggest player with a combined market value of $66.6 billion.
The two companies Tuesday said both boards endorsed the combination after on-again, off-again talks that foundered earlier this year over the makeup of any combined company and other issues. Praxair, based in Danbury, Conn., committed Tuesday to preserving jobs in Germany to win the backing of Linde's directors.The industrial, or specialty, gas industry is one of the critical pillars of the modern economy, though its biggest players have never been household names. They provide gas mixtures, like helium and pure oxygen, used in all sorts of industrial applications. Key customers include oil drillers and refiners, chemical makers and hospitals. Praxair and Linde also make gases used in manufacturing and food production.
Regulators around the world still need to approve the tie-up. Linde is currently the industry's No. 2 player and Praxair is No. 3, behind industry leader Air Liquide SA of France. A Linde-Praxair combination would have about $30 billion in annual sales before divestitures.
Analysts at Bernstein Research expect the companies may have to part ways with activities generating around $5 billion in annual sales to appease regulators. The companies said there is no guarantee the deal can be completed.
The deal still requires customary shareholder approval as well. The two companies said they were working to quickly cement a definitive combination agreement.
Linde shares were trading 1.8% lower in Frankfurt after the deal was announced. Praxair shares were down 4.5% in morning trading in New York. The Wall Street Journal broke news of the rekindled talks last month.
The industrial-gas sector has been in flux amid declining energy prices and sluggish growth in key developed markets. Slowdowns in oil and gas activity and health-care spending, particularly in the key U.S. market, have been a drag on performance. Companies that compete in the business have rushed to consolidate to gain scale amid those headwinds.
In May, Air Liquide completed its own big deal, buying U.S.-based Airgas Inc. for about $10 billion, and propelling the French company to the top of the industry pack. Munich-based Linde had previously wrested the No. 1 position from Air Liquide with its $14 billion takeover of the U.K.'s BOC PLC in 2006.
Linde and Praxair first discussed a merger two years ago but put those talks on ice after the German company issued profit warnings. Talks were revived this summer. But Linde's board in September called off that round over concerns about the deal's structure.
The breakdown of talks led Linde Chief Executive Wolfgang Büchele, who backed the tie-up, to quit. He was replaced by Aldo Ernesto Belloni. The company's chief financial officer, George Denoke, also departed.
Praxair moved to rekindle talks in November, with a pledge for the combined company to have a dual New York and Frankfurt listing. The merged company, to be called Linde, would also maintain facilities in Germany, the two companies said Tuesday.
Praxair Chairman and Chief Executive Steve Angel will be CEO of the new company and based in Danbury. Linde Chairman Wolfgang Reitzle will retain that role. The new holding company will be domiciled somewhere in the European Union, though the two companies didn't say where. The new board will have equal representation from both companies.
The companies promise $1 billion in annual cost savings from joining forces.
Linde shareholders would receive 1.540 shares in the new company for each of their existing share, and Praxair shareholders would receive one share in the business for each of their shares.
The deal is also a corporate reunion, of sorts. What is now called Praxair was once part of Linde. Founded as the German company's American arm in 1907, Linde Air Products developed so rapidly that by World War I, it was bigger than the German parent. In the early part of last century, Union Carbide Corp. bought Linde Air Products. It then spun the company off in 1992, naming it Praxair. Union Carbide is now part of Dow Chemical Co.
Perella Weinberg Partners and Morgan Stanleyare advising Linde. Hengeler Mueller, Cravath Swaine & Moore LLP and Linklaters LLP are serving as legal counsel to Linde. Credit Suisse and Sullivan & Cromwell LLP are advising Praxair.
Write to Robert Wall at email@example.com
(END) Dow Jones Newswires
December 20, 2016 10:15 ET (15:15 GMT)
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