Leaking revenues Rivals' Merger Threatens Gas Giant Linde

Linde, the world leader supplier of gases to industry and health care providers, has been hit by declining revenues and falling stock price. Now, a merger between French rival Air Liquide and U.S.-based Airgas threatens its pole position.
Linde helped to build Europe's largest natural gas liquefaction plant, near Hammerfest in Norway.

When analysts speak of “lack of credibility” and “crisis of confidence,” it signals rough times for a company's management, even at Germany’s well-regarded Linde Group.

The Munich-based firm, a world leader supplier of industrial gases and engineering services, had been a darling among investors. Its long-term delivery contracts for gas products, used in industry and health care, promised both stability and rising revenues.

But last November, its chief executive, Wolfgang Büchele, ignited an investor firestorm when he issued the company’s second profit warning in 13 months. Linde’s stock, which is listed on the DAX blue-chip index of leading German companies, plunged more than at any time in the past 14 years.

“Everyone was shocked,” said Heiko Feber, an analyst at Bankhaus Lampe, a private bank.

The situation at Linde hasn’t improved since – in fact, it might be worse. “During the fourth quarter, there was quite a ruckus in company management,” a source familiar with the situation told Handelsblatt.

Linde’s business has been hit by the weakening world economy, lower prices in U.S. health care and falling oil prices.

Mr. Büchele, who took over from Wolfgang Reitzle two years ago, will announce 2015 results in the coming week. They won’t be pretty.

Linde’s business has been hit by the weakening world economy, lower prices in U.S. health care and falling oil prices. Now its French rival Air Liquide is making life even tougher. The Paris-based company is in the process of taking over leading U.S. gas producer Airgas for €13 billion ($14.3 billion). The tie-up would knock Linde out of pole position in the world market.

The problems are partly Mr. Büchele’s own doing and partly external. For example, U.S. health officials decided to cut payments this year to suppliers of medical gases such as oxygen. That is toxic for Linde's U.S. subsidiary Lincare, which Mr. Büchele’s predecessor purchased in 2012 for €4.6 billion. Management sources say “the changes are having an enormous impact” and could result in hundreds of millions in lost revenues.

Linde also can’t do much about low oil prices. The company designs and builds oil and petrochemical plants, an area that constitutes 20 percent of overall revenues. But with prices down more than a half in the last year, drillers are cutting back on big investments.

What's more, the weaker global economy is weighing on its industrial gases business. Management sources say no improvement in the world economy is expected in the next two years.

Mr. Büchele, who spent 20 years at BASF chemicals, was particularly put on the defensive by Air Liquide.

Wolfgang Büchele is steering Linde through a tumultuous time.


After the Lincare acquisition, Linde was the world’s clear number one among gas producers, with sales of roughly €18 billion last year. But if Air Liquide’s deal for Pennsylvania-based Airgas goes through, the French competitor would have more than €20 billion in sales.

The deal is costing the French firm a lot. The head of Air Liquide, Benoît Poitier, intends to pay $143 per Airgas share. That is a premium of 50.6 percent on the company’s average stock price in the month before the acquisition was announced.

It sent Air Liquide shares sharply downward, but Mr. Poitier is unswerving in his conviction.

“The purchase price can’t be judged only on the basis of criteria from the past,” he told the German business magazine Wirtschaftswoche, a sister publication. “Analysts haven’t factored that in yet.”

What will worry Mr. Büchele about the deal is the growing strength of the French in the U.S. market. If antitrust regulators sign off the deal, then in the future Air Liquide will do more business in the United States than in its domestic market. The French company will derive 40 percent of its revenues in the U.S. market, compared to 31 percent for Linde.

In contrast to Lincare, Airgas is not dependent on the U.S. health system. Its core business is in selling steel canisters of oxygen and other gases. In the U.S. gas business, Air Liquide also has the reputation of being a pioneer in e-commerce. The French intend to capitalize on this lead.

“We could amortize our digital development on a double foundation in Europe and the United States,” Mr. Poitier said.

But Mr. Büchele could soon receive support in planning a counter-strategy. In May, his predecessor Mr. Reitzle will return to the company as head of the supervisory board. The word from company management is that this is considered to be “very positive.”


This article originally appeared in the business magazine WirtschaftsWoche. To contact the authors: [email protected]