The Linde-Praxair merger could result in divestitures in the US, Germany and Brazil “based on the high combined market shares in these geographies,” according to a report from ratings agency Moody’s Investors Service (New York).
The $70-billion merger, which will create a gases giant with $30 billion/year in revenues, has been widely expected to result in some large divestitures for regulatory reasons. “While it remains unclear what regulators around the world will require the company to divest to complete the merger, we believe asset dispositions will be significant and interest from buyers will be strong,” Moody’s says.
The merger agreement allows either party to terminate the deal if divestitures exceeding €1.1 billion/year ($1.3-billion) in EBITDA or €3.7 billion/year in revenue are required by regulators. Linde and Praxair leaders have acknowledged that “there is a limit to divestitures before the deal no longer makes financial sense,” although that level may be above the figures stipulated in the merger agreement, Moody’s notes. The deal also may face opposition from German labor unions due to the possibility of job cuts.
Air Products, which nixed a deal for China’s Yingde Gases due to turmoil at that company earlier this year, is seen as a strong buyer for divestitures by Linde-Praxair. “Air Products is well-positioned to participate in a second wave of smaller deals, with significant balance sheet cash and moderate incremental debt capacity,” Moody’s says.
Moody’s sees the merger as a positive for the combined entity’s credit ratings. “The combined company would have greater ability to improve profitability despite relatively slow growth in most developed markets,” the ratings agency notes. Proceeds from divestitures could also be used to pay down debt, it adds. The merged company is expected to have an ‘A2,’ investment-grade, credit rating, in line with Praxair’s current rating.
Yesterday, the 10-week acceptance period for Linde shareholders to exchange their shares for shares in the new entity began. Linde shareholders who accept the tender offer, which expires on 24 October, will receive 1.54 shares in the newly-merged company for every Linde share they own. Some 75% of Linde shareholders will need to accept the tender offer for the transaction to proceed.
By Vincent Valk
Source: Chemical Week
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