Sector News

Praxair resurrects merger talks with Linde

November 30, 2016
Chemical Value Chain

Praxair remains open to merger. Praxair confirmed today that it has approached Linde about resuming discussions regarding a potential merger, but declined to provide additional details.

Talks were terminated in September after shareholder representatives on the supervisory board of Linde, in agreement with the CEO of Linde, recommended to the management and supervisory board of the company to end negotiations. Linde’s concerns about the deal centered on uncertainty surrounding the company’s Munich, Germany, headquarters, particularly the possibility of job losses there and the transfer of key functions to the United States. The deal’s collapse triggered the departure of Linde management, with CFO Georg Denoke exiting the company on 13 September, and CEO Wolfgang Büchele indicating he will not renew his contract when it expires in April 2017.

Combining the two companies would create the largest industrial gases player, with total annual revenue of about $30 billion before possible divestments.

In the wake of the deal’s collapse, Praxair CEO Stephen Angel indicated that he remained open to the merger.

Analysts, however, are skeptical that a deal will be reached. “We continue to estimate a low likelihood (20%) of a merger between [Praxair and Linde] for three reasons,” says Jeremy Redenius, with Bernstein (London). First, there is no precedent of any size for a takeover of a German company by an American company. “The Praxair “merger-over” of Linde would be an uncomfortable German corporate first (i.e., lots of cost-cutting),” he says. Second, Linde’s likely demands—which are likely to include favorable share exchange ratio and protection of the Munich location—will run counter to Praxair’s established “bidding discipline.” Finally, while anti-trust clearance “seems feasible, it requires substantial divestment and is still uncertain,” Redenius says.

Bernstein values Linde at about €157/share in a merger scenario. “With the shares now at about €158 (based on the ADR at $16.88) and an undisturbed price of €139, much of the value of the merger is already in the stock,” he adds.

By Rebecca Coons

Source: Chemical Week

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