Can’t breathe easy yet

Time is tight for Linde-Praxair merger as regulators pile on conditions

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Deal needs an oxygen fix. Source: Reuters

The merger of Linde and Praxair to form the world’s largest producer of industrial gases remains in suspense after the partners disclosed on Wednesday that regulators are requiring divestment of assets exceeding their self-imposed threshold of €3.7 billion ($4.3 billion) in sales, putting the viability of the merger at risk.

“Linde and Praxair remain in constructive dialogue with each other and the regulators on how to satisfy their requirements,” Munich-based Linde said in a statement. Either party can cancel the $83 billion deal if the divestment threshold is passed, but investors took the company statement as a sign they are willing to consider exceeding the threshold by a few hundred million euros in sales.

The other parameter set in the merger contract was divestments of €1.1 billion in operating earnings. There has been no word from the companies that this threshold will be exceeded.

The two companies, which first announced the merger in 2016, have said they expect to realize more than a billion euros through the synergies between the two companies.

Regulators’ antitrust demands continue to grow

In the meantime, both the EU and the US Federal Trade Commission have identified numerous divestments where the businesses overlap and may hinder competition. The EU gave conditional approval to the merger earlier this week but the FTC is still in talks.

So far, Praxair has agreed to sell its European business to Taiyo Nippon Sanso of Japan and Linde most its US business to German rival Messer. These divestments represent about €2.7 billion in sales and €700 million in operating profit. But the FTC has indicated it’s not enough to pass antitrust muster.

The companies are also bumping up against an October 24 deadline because of German stock exchange rules.

Investors largely unperturbed

Regardless of the uncertainties, investors remain unperturbed. A collapse of the deal would not be the end of the world. “We want the merger, but not at any price,” Arne Rautenberg, fund manager at Union Investment, told Handelsblatt. Linde has “already shown impressively that the company can also drive cost savings and increase profitability as an independent company.”

Linde non-executive chairman Wolfgang Reitzle has more on the line. He has pushed for the merger over opposition in the board and sees it as the crowning legacy of long career in industry, notably as a top executive at BMW and then as head of Ford’s luxury car division in Europe.

Failure of the merger would almost certainly entail his departure. CEO Aldo Belloni, who came out of retirement to lead the company during the merger, will be departing in any case. Praxair boss Steve Angel will head the combined companies if the merger goes through.

Axel Höpner covers companies for Handelsblatt in Munich. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: hoepner@handelsblatt.com

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