Two of the largest industrial gas suppliers in the world, Praxair, Inc. and Linde AG, have had plans of merging for nearly two years, and the deal finally came to completion in October 2018. This $90 billion-dollar merger has now created a giant in the industrial gas industry, decreasing the international competition from four major players to three. Air Liquide has now been displaced by the giant (now under the name Linde) as the world’s largest industrial gas company with an estimated revenue of $27 billion, employing nearly 80,000 people in over 100 countries to roughly 2 million customers.
What the Merger Hopes to Accomplish
Based in Danbury, Connecticut, Praxair, Inc. has been the leading supplier of industrial gases across the Americas. Based in Munich, Germany, Linde AG’s main territory is in the European Union, United Kingdom, Africa and the Middle East.
Between the two companies, their territory will cover most of the world. According to a statement made by the newly merged company, the merger hopes to accomplish the following:
– Establish strong, complementary positions in key geographies to create a more diverse and balanced end market portfolio
– Leverage unique strengths of each company: Linde’s longstanding leadership in engineering and technology with Praxair’s operational excellence
– Create an innovation powerhouse by bringing together both companies’ research and development competencies, well positioned to both develop innovative solutions and to deliver them to the markets
– Is expected to create considerable value in annual cost and efficiency synergies, resulting in a robust balance sheet and strong cash flow generation
Concerns for the Competition
Because of the capacity of these two companies, there has been a lot of concern about whether or not competition would be reduced in the EU and US, specifically for gases like Oxygen and Helium. If this becomes the case, the price of these gases will increase for the end customer.
Prior to the agreement, the European Commission opened an investigation of the merger to ensure that there were no unfair business practices taking place. On top of that, the Federal Trade Commission negotiated with the companies for 33% divestitures, which will be final by January 29 to avoid the two entities driving the price on particular gases. Linde was required to sell all of their bulk liquid Oxygen, Nitrogen and Argon business in the United States, plants in Clear Lake, Texas, and plants along the Gulf Coast, and more. On top of that, all of Praxair’s business in Europe is now owned by a competing Japanese company, Taiyo Nippon Sanso Corp. By selling divestments, the FTC has tried to even out the competition as much as possible as not to harm the business of other industrial gas companies.
According to TechSci, “The companies [Linde and Praxair] can get together to target the other players in the market on diminished input pricing. Diminishing input pricing will lead to lower cost price which will lead to higher demand and a larger market share, in theory at least.”
As part of the agreement with the FTC, Linde will not conduct business under commercial operations, but will operate locations as independent companies. Competition will remain, but with the back-and-forth between Praxair, Linde and the FTC, the hopes are that other players in the industrial gas industry will not be harshly affected by the merger. Since Praxair and Linde were once rivals, only time will tell if they have made the right divestment decisions to leverage their business, as well as how this agreement will affect regional and international competition across the industrial gas industry.