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Linde, Praxair stock up as merger approved in US, large divestments required

October 22, 2018
Chemical Value Chain

Linde and Praxair’s shares rose sharply on Monday after the US’ Federal Trade Commission (FTC) cleared the industrial gases majors’ merger, subject to Linde divesting a large chunk of its business in the country.

The US’ clearance was the last hurdle for the $45bn merger announced in 2016, which is expected to close on 31 October.

Linde’s shares were trading at €190.35 at 16:40 London time, up 3% compared to the previous day’s close. Praxair’s shares were up 2.16% to $163.31.

“Necessary divestitures include, in particular, certain sales in the US which Linde AG is required to complete by 29 January 2019,” said the German firm.

“Until the completion of the majority of such divestitures, Linde and Praxair are obliged to operate their businesses globally as separate and independent companies, and not coordinate any of their commercial operations.”

According to chemical equity analysts at London-based Bernstein Research, the last divestiture includes nearly all of Linde’s US on-site business, which recorded approximately €1bn of revenue in 2017.

Details of the divestitures are as follows, according to Bernstein:

  • Germany-headquartered industrial gases firm Messer will acquire 32 of Linde’s US air separation units (ASUs), 16 carbon dioxide (CO2) facilities and a few other assets including helium contracts, laser gases and a liquid hydrogen plant.
  • US’ Matheson Tri-Gas will buy five hydrogen facilities on the Gulf Coast and Linde’s hydrogen pipeline.
  • US’ chemicals major Celanese will buy out Linde’s stake in the Clear Lake joint venture.
  • US’ chemicals major LyondellBasell will acquire the remaining stake in the La Porte joint venture.
  • Linde will retain four ASUs, eight CO2 facilities and seven hydrogen carbon monoxide (HyCo) facilities.

“Deal terms are not yet clear, but we’d expect a multiple lower than or equal to the one Messer agreed to pay for Linde’s bulk American business, 9.2x [times] 2017 EBITDA [earnings before interest, tax, depreciation and amortisation],” said the analysts.

They added that the final approval for the deal to go ahead would be a positive for the two firm’s stocks, expecting both share prices to move up approximately 5%.

However, it said that political infighting, along with talent flight from the organisation resulting from the merger, are likely to cause post-merger integration to fail.

“As these challenges become apparent, we expect the stock to underperform,” said Bernstein.

Linde and Praxair reiterated on Monday their synergies target post-merger of $1.1-1.2bn over “approximately” three years.

The new entity, Linde plc, will start trading on the Frankfurt Stock Exchange on 29 October and on the New York Stock Exchange on 31 October 2018.

The combined entity would have pro-forma sales of around $27bn, employ more than 80,000 workers and have faciliteis in more than 100 countries.

Linde also confirmed on Monday that the European Commission – the EU’s executive body – had approved the buyer of Praxair’s divestment business in Europe.

The two firms have been attempting to merge since 2016, when, after initial talks collapsed in September that year, the two eventually came to an agreement in December.

However, the deal hit many stumbling blocks along the way as it attempted to gain regulatory approval from all the authorities necessary.

The EU opened an in-depth probe into the merger in February of this year, before conditionally approving the deal in August.

However, just days after receiving conditional EU approval, news that the revenue threshold for asset divestiture commitments agreed by the two firms would likely by exceeded threatened to scupper the deal once more.

On 16 October, Linde said that it had met with the US Federal Trade Commission about the matter and that it had submitted a remedy package of proposed divestitures.

“It is a privilege for me to lead the talented people of two world-class organisations as we come together to form the undisputed leader in our industry,” said on Monday Steve Angel, current Praxair CEO and the incoming CEO of Linde post-merger.

By Niall Swan

Source: ICIS News

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