Several industrial gases companies and private equity firms are eyeing assets in Europe and North and South America that Linde and Praxair will need to sell to gain approval for their $80-billion merger. Messer (Bad Soden, Germany), a private industrial gases group, has teamed up with CVC to bid for some of the assets, the company tells CW.
Another potential bidder is Japan’s largest gases firm, Taiyo Nippon Sanso. In addition to CVC, KKR and Carlyle from the private equity world are also said to be considering taking part in the auction.
A report on Bloomberg also names Air Liquide and Air Products, the two remaining major industrial gas players, as vying for some of the assets, but industry sources say that antitrust issues would probably prevent them from countrywide acquisitions in the two major markets, North America and Europe, though deals are possible on a specific regional or localized basis.
The European Commission last month opened an in-depth inquiry into the Linde-Praxair merger, stating that the combination would reduce the number of major players from four to three, and harm competition. The two companies have admitted that the divestitures required are greater than they originally expected, though still less than the threshold of €3.7 billion ($4.56 billion) of 2016 sales, at which they could cancel the deal. The European antitrust regulators are understood to favor strong industry players as potential buyers in order to foster long-term competition in this highly concentrated market. Analysts say this would seem to disadvantage private equity firms, whose typical exit horizon is four to five years.
Bloomberg, citing people familiar with the matter, said the assets currently on the block generated almost $700 million in operating profits in 2016. It expects the proceeds from the divestments to be around $8 billion. Analysts at Bernstein Research have previously estimated that the two companies might need to divest businesses with about $4.8 billion of sales in 2016, or 16% of the merged entity’s pro forma 2016 sales. Linde would likely need to divest about $2 billion of 2016 sales in North America and Praxair would have to shed more than $1.5 billion of sales in Western Europe, notably in Germany, Scandinavia, and the United Kingdom, they say. Linde would likely also have to shed $960 million of sales in South America, where Praxair has a dominant 42% market share, and Praxair might have to sell $244 million of on-site sales in China, Bernstein believes.
Senior sources at Messer tell CW that Messer is pursuing the Praxair-Linde merger process very intensively. “Above all, from the point of view that for antitrust reasons, various activities in Europe, North and South America must be sold,” they say. Messer, whose revenue in 2016 reached €1.15 billion ($1.41 billion), due to the size of the divested activities and the expected purchase price, could not implement a potential acquisition alone. “Therefore, it is our intention to conduct the acquisition together with the private equity investor CVC, whose managing director, Alexander Dibelius we know very well from a similar successful cooperation at the former Messer Griesheim between 2001 and 2004.” The sources add that the process is at an early stage and it is premature to comment on the nature, scope, and extent of the divestments as antitrust investigations into the merger in various jurisdictions are still ongoing.
Messer Griesheim, a midsize industrial gases company, was owned 33.3% by the former Hoechst. The shareholding was sold to Goldman Sachs and Allianz Capital Partners in 2001 and in 2004. Stefan Messer has since bought the shareholding back. To finance the acquisition, he sold Messer’s industrial gases assets in Germany, the United States, and the United Kingdom to Air Liquide. The prized German assets eventually ended up in Praxair’s hands.
Messer tells CW there might be an opportunity to acquire parts of the former German business of Messer Griesheim. “But…there are many potential bidders in the field which are interested in this asset as well…so it is uncertain whether we will be able to get it back.”
Preliminary information about the assets was sent out in the second half of February to prospective buyers, who have the option to bid for the complete package or for parts, Bloomberg says.
By Natasha Alperowicz
Source: Chemical Week
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