Win-win deal

German gas firm Messer profits from Linde-Praxair selloff

Operations At Linde AG Compressed Gas Plant As $41 Billion Praxair Inc. Merger Wins Investor Backing
Get ’em while they’re in cylinders. Source: Bloomberg

The global market for industrial gases is a tight-knit group, long dominated by a handful of big players: France’s Air Liquide, Germany’s Linde, and American rivals Praxair and Air Products. But with that number about to shrink, another German family-owned medium-sized company plans to launch itself into the big leagues.

Messer, based in Bad Soden near Frankfurt, is profiting from a win-win situation. Linde’s planned merger with Praxair has forced it to sell activities to secure clearance from antitrust authorities. So Messer has agreed to purchase Linde’s gases business in North America, as well as certain Linde and Praxair assets in South America.

Messer joined forces with buyout group CVC for the €2.8 billion ($3.28 billion) purchase. “We want to become a global player,” Stefan Messer, the owner and CEO of the company, told Handelsblatt. Alexander Dibelius, CVC’s head of German operations, echoed the sentiment, calling it a major opportunity in the “attractive industrial gases sector.”

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Messer, which last year increased its revenue by 7 percent to €1.2 billion, will essentially double in size. Its newly-acquired American operations generated sales of around €1.4 billion and operating profit of €305 million in 2017. Their combined revenue is still dwarfed by that of Linde-Praxair and three other players (see graphic), but it’s a sign of the company’s broader ambitions.

The deal also marks a return to the US market for Messer, which departed in 2004 after selling its US operations to Air Liquide in a restructuring. Mr. Messer said he was convinced the expansion into America was the right step despite mounting tensions in European trade relations with the US and the difficult political environment in South America. “It was a unique opportunity for us that won’t come back,” he said.

The German company wants to grow its Asian business as well, and aims for it to become as big as its American operations in five to six years. Nor is he worried about an economic downturn. “The gases business has been shown to be very stable over decades,” said Mr. Messer.

A better deal

For Linde and Praxair, the sale means they have managed to clear the two biggest antitrust hurdles for their merger in quick succession. Earlier this month, Praxis announced the sale of large parts of its European business to competitor Taiyo Nippon Sanso Corporation for €5 billion. The operations generate revenue of €1.3 billion and operating profit of around €400 million.

That means Messer is paying lower multiples than the Japanese company – only twice the revenue instead of almost four times. But industry sources said the two deals weren’t strictly comparable, because Messer was buying a number of individual sites and plants in a fragmented deal that won’t yield the same kind of economies of scale as the high-margin single company purchased by Taiyo Nippon Sanso.

For now, Messer is reliant on CVC to complete the deal. The two partners will each hold 50 percent of a joint venture, to be called MG Industries. CVC is also contributing capital, though two-thirds of the purchase will be funded through borrowing. But Messer expects to pay down the debt from operating profits. Its goal is to acquire CVC’s shares after three to four years and then integrate the business.

Despite going global, there are no plans for Messer to go public or bring in external shareholders. The group “will remain independent,” said Mr. Messer.

Axel Höpner is a senior correspondent for Handelsblatt’s companies section and based in Munich. David Crossland and Christopher Cermak contributed and adapted this article into English for Handelsblatt Global. To contact the author: hoepner@handelsblatt.com

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