An American firm Praxair Inc. and its German rival Linde AG have planned a merger that would put them at the top of the industry as one industrial gases company valued at over $66.6 billion.
The two companies made the announcement earlier today, noting that the agreement still remains non-binding at this point and both parties are free to cancel it. However, the definitive agreement will follow "as soon as practicable", they said. According to the official press release, Praxair (NYSE: Praxair [PX]) and Linde (ETR: LIN) plan to complete the merger via an all-stock transaction, with Linde shareholders receiving 1.54 shares for every Linde share and Praxair shareholders getting one share of the new holding company for every PX share.
The news comes as a relief since the companies' boards have been in talks about the potential merger for months prior to today's announcement as they couldn't agree on a number of critical issues. The Wall Street Journal said that Danbury-based Praxair has agreed to preserve more than 64,000 of Linde's jobs located in Germany after the combined company is created in order to win the support of Linde's board of directors. The new company will exist under Linde's name and will be listed at both New York's and Frankfurt's stock exchanges potentially included in S&P 500 and DAX indexes, as well.
As a result of the deal between the two companies with a market value of over $30 billion each, they expect to create "considerable value" of $1 billion in annual cost synergies.
"Under the Linde brand, we want to combine our companies’ business and technology capabilities and form a global industrial gas leader. Beyond the strategic fit, the compelling, value-creating combination would achieve a robust balance sheet and cash flow and generate financial flexibility to invest in our future," Prof. Dr. Aldo Belloni, CEO of Linde, said in the statement.
The industrial gas industry Praxair and Linde operate in is one of the most important industries for the world's economy, though the leading players mostly stay away from the spotlight. The industry is closely connected with the oil sector as industrial gases companies supply gas mixtures to oil drilling and refining companies as well as those working with chemicals and industrial manufacturing, explains the WSJ.
However, the experts say that the main issue is the industry's high concentration of power since it is currently dominated by only three main players - French Air Liquide (NYSE: Arlington Asset Investment [AI]), Linde and Praxair. That is why, the merger might face serious scrutiny from the antitrust commission that approved Air Liquide's acquisition of a smaller gas player Airgas Inc. only a few months ago, what allowed the French company to become the largest supplier. Further industry consolidation emerging from the Praxair-Linde merger might only complicate the situation.
The immediate stock market reaction on the merger was quite discouraging, with Praxair shares dropping 4.5% to $117.49 in New York in the early trading session while Linde lost 2.14% to €159.55 in Frankfurt.