By Ludwig Burger
German industrial gases group Linde (LING.DE) and U.S. suitor Praxair (PX.N) have agreed an outline for a $65 billion-plus merger, with the combined company to be run out of the United States by Praxair's chief executive.The agreement, unveiled on Tuesday, comes after Praxair provided new assurances to Linde over jobs and corporate governance in Germany, sources have said. As part of the agreement on key aspects of the planned all-share merger, existing Linde and Praxair shareholders would each own about 50 percent of the combined company.The merged group will target $1 billion in cost savings, the two companies said in a joint statement, although some analysts said that figure looked overly optimistic."The transaction would unite Linde's long-held leadership in technology with Praxair's efficient operating model," the companies said.Alongside rivals Air Liquide (AIRP.PA) and Air Products and Chemicals Inc (APD.N), Linde and Praxair are struggling with slower growth in demand from clients in the manufacturing, metals and energy industries. That has already led to consolidation in the industrial gases sector with Air Liquide buying Airgas Inc for $13.4 billion.Linde shareholders will receive 1.54 shares in the merged company for each of their shares, the two groups said. Praxair shareholders will get one share in the new holding company for each Praxair share.The main terms of the proposal had been flagged by Reuters earlier this month.
The new entity, representing a combined $30 billion in 2015 revenues before antitrust sell-offs, will have a dual listing in New York and Frankfurt.Praxair's previous approach for Linde failed in September partly because of disagreements over where to locate key activities and who would run the business.The two sides have now agreed that Praxair chairman and CEO Steve Angel will become CEO, based at Praxair's current headquarters in Danbury, Connecticut. Linde's supervisory board Chairman Wolfgang Reitzle, will take the role of chairman of the new group.The company will be domiciled outside of Germany in a member state of the European Economic Area - which comprises the European Union as well as Iceland, Liechtenstein and Norway."Corporate functions would be appropriately split between Danbury, Connecticut and Munich, Germany to help achieve efficiencies for the combined company," Munich-based Linde and Praxair said in their statement.
Germany's powerful IG Metall union has said it would support the merger after workers were given assurances such as maintaining Linde's two biggest sites in Germany.CULTURAL COMPLEXITY
Bernstein analyst Jeremy Redenius said the cost savings target of $1 billion would be difficult to achieve.
"We think the $1 billion synergies number is overly optimistic considering the cultural complexity of the combination and anti-trust related gases business divestitures that could total $5 billion of annual sales," he said.That echoed concerns previously voiced by analysts such as Equinet's Knud Hinkel, who said a sizeable amount of disposals for antitrust reasons would likely strengthen rivals.Investment bankers have flagged possible divestments to ease antitrust concerns in the United States and Brazil for Linde and in Germany for Praxair, making it difficult to achieve the cost cutting targets with a smaller revenue base.Linde and Praxair declined to comment on possible divestments.Praxair's finance chief Matthew White has previously made clear that cutbacks were the main driver behind its acquisition strategy, telling analysts last month: "We buy on synergies, we're not going to buy on assumptions of growth."Once remaining secondary aspects of the deal are hammered out, the deal's fate will lie with regulators and Praxair and Linde shareholders.Perella Weinberg and Morgan Stanley (MS.N) advised Linde, while Credit Suisse (CSGN.S) advised Praxair. Goldman Sachs (GS.N) and Bank of America (BAC.N) provided a fairness opinion to Linde's supervisory board. (Additional reporting by Arno Schuetze)
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Updated Date: Dec 21, 2016 02:15:07 IST