Daily Management Review

$65 Billion Merger Outline and Ambitious Cost Savings Agreed Upon by Linde and Praxair


12/21/2016




$65 Billion Merger Outline and Ambitious Cost Savings Agreed Upon by  Linde and Praxair
With the combined company to be run out of the United States by Praxair's chief executive, German industrial gases group Linde and U.S. suitor Praxair have agreed an outline for a $65 billion-plus merger.
 
Sources have said that Praxair provided new assurances to Linde over jobs and corporate governance in Germany and the agreement comes after that.
 
Existing Linde and Praxair shareholders would each own about 50 percent of the combined company as part of the agreement on key aspects of the planned all-share merger.
 
Although some analysts said that figure looked overly optimistic, the two companies said in a joint statement that the merged group will target $1 billion in cost savings.
 
"The transaction would unite Linde's long-held leadership in technology with Praxair's efficient operating model," the companies said.
 
Linde and Praxair are struggling with slower growth in demand from clients in the manufacturing, metals and energy industries alongside rivals Air Liquide and Air Products and Chemicals Inc.
 
With Air Liquide buying Airgas Inc for $13.4 billion, that has already led to consolidation in the industrial gases sector.
 
The two groups said that in the merged company for each of their shares, Linde shareholders will receive 1.54 shares. 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.
 
There will be a dual listing in New York and Frankfurt for the new entity, representing a combined $30 billion in 2015 revenues before antitrust sell-offs.
 
Partly because of disagreements over where to locate key activities and who would run the business, Praxair's previous approach for Linde failed in September.
 
Based at Praxair's current headquarters in Danbury, Connecticut, the two sides have now agreed that Praxair chairman and CEO Steve Angel will become CEO. The role of chairman of the new group wil be taken up by Linde's supervisory board Chairman Wolfgang Reitzle.
 
In a member state of the European Economic Area - which comprises the European Union as well as Iceland, Liechtenstein and Norway, the company will be domiciled outside of Germany.
 
"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.
 
It would support the merger after workers were given assurances such as maintaining Linde's two biggest sites in Germany, Germany's powerful IG Metall union has said.
 
The cost savings target of $1 billion would be difficult to achieve, Bernstein analyst Jeremy Redenius said.
 
"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.
 
Analysts such as Equinet's Knud Hinkel, who said a sizeable amount of disposals for antitrust reasons would likely strengthen rivals has previously echoed such concerns.
 
Making it difficult to achieve the cost cutting targets with a smaller revenue base, investment bankers have flagged possible divestments to ease antitrust concerns in the United States and Brazil for Linde and in Germany for Praxair.
 
Linde and Praxair declined to comment on possible divestments.
 
(Source:www.reuters.com) 






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