Their merger will create the world’s largest supplier of industrial gas. But the $75 billion deal between German company Linde and US Praxair is not cut and dried yet.
EU antitrust regulators are set to announce on Friday that it will start an in-depth review, a so-called phase 2 investigation, of the planned merger. The crux of the matter: The selection of potential buyers for company parts that Linde and Connecticut-based Praxair want to sell to defuse antitrust concerns.
Competition officials in Brussels hope that these parts will be sold to one or several strong competitors in Europe – instead of many small regional competitors – Handelsblatt learned. “The European Commission wants to see a similar heavyweight taking over,” a source familiar with the negotiations told Handelsblatt. Major competitors such as Air Liquide and Air Products, but also the German competitor Messer Group, could be top choices.
Given the scope of the merger, cartel experts are not surprised by the EU decision to probe further.
The number two and three in the world have to get the green light from nine major competition authorities. Given the huge scope of the potential merger, cartel experts are not surprised by Brussels’ decision to investigate the deal further. “This is especially true if a merger creates a market leader,” antitrust lawyer Martin Gramsch at Simmons & Simmons told Handelsblatt.
Margins are high in the market with few players. Industrial gases such as nitrogen, oxygen, and rare gases are used in many industries. Demand for rare gases in particular is rising rapidly, in sectors such as electronics, automotive, aerospace, lighting, and healthcare (neon is used in ophthalmology, for example). Both Linde and Praxair sell to companies worldwide.
It is understandable that the European Commission urges the two companies to sell to strong competitors, said Mr. Gramsch. Determining a group of buyers “will ensure that after the merger there will still be companies who can compete with Linde-Praxair.”
That's where competitors like Air Liquide come into play. The French company became the global market leader after acquiring the Pennsylvania-based gas supplier Air Gas.
The American company Air Products, the number four worldwide, has also reportedly shown interest in company parts that will be sold off. One of the few companies that have so far officially indicated interest is the German Messer Group.
The industrial gas competitors of Linde and Praxair could benefit from purchasing company parts. They could tackle new markets where they do not have a strong presence yet. This applies, for example, to Air Products in Europe, and to Messer in the US, where Linde’s and Praxair’s businesses overlap.
The details of the antitrust review and Brussels’ demands are still unknown. The EU Commission is expected to make a statement on Friday. Antitrust officials examine each product and distribution channel closely. Nonetheless, Linde and Praxair are confident that their timetable for the merger in the second half of 2018 is on track.
Axel Höpner is head of the Handelsblatt office in Munich, Thomas Jahn is Handelsblatt’s New York bureau chief. Stephanie Ott adapted this article for Handelsblatt Global. To contact the authors: [email protected], [email protected] and [email protected].