Greater than the sum of its parts ?
As 2016 drew to a close and the dust settled in the Oil & Gas market, German multinational Linde and American global Praxair finally announced a merger deal that exceeded $65 billion. After two years of careful negotiation, the two gas giants predicted that the combination of Linde's lead in technology and Praxair's long-standing efficient operations model would bring about savings of around $1 billion. The decision to merge makes good business sense, the prospective garnering of $1 billion in annual synergies offer an opportunity to increase profits for both companies.
The global appetite for large scale, major capital projects in the gas industry is waning. That said, gas is still a growth industry and has compensated by shifting the emphasis to shorter cycle projects. Deloitte suggest that the present turndown of the gas industry is not set to last and that recovery will bring renewed growth and investment opportunities.
This deal was announced in December and the two companies are now in the process of agreeing details. We already know that the company will run from the Praxair headquarters in Danbury Connecticut, under the experienced guidance of Praxair's Chief Executive and Chairman Steve Angel. To balance Linde's supervisory board chairman Wolfgang Reitzle will be the new group's chairman. As Praxair was originally a subsidiary of Linde (sold off to Union Carbide 100 years ago), the new recombined entity will be known as Linde. The merger has been given the approval of the powerful German union IG Metall after assurances that the two biggest German Linde sites would be maintained.
Despite concerns on the Linde side that Praxair are dominating the decision making process, sources suggest that Praxair have sensibly agreed to a dual headquarters arrangement which will include the Linde hub in Munich. Praxair are also considering moving their European operation to Munich from Italy. The division of board seats is set to be equal with three each of the six available seats being allotted to both Linde and Praxair.
One of the issues facing Linde and Praxair in this merger will be that of antitrust (competition law) disposals as the deal is likely to attract close scrutiny. However the gas industry is still global big business with an annual revenue of $30 billion. Linde and Praxair are both used to large profit margins (11.5% and 21.1% respectively) and revenues ($18 billion and $10.5 billion), and pre-merger both have been popular with shareholders.
Because these two companies have such a parallel standing in the industry, the merger is being seen as one of equals and shares will be divided 50:50. In reality, because of the difference in value of the two companies' shares, this means a 1.54% share for current Linde shareholders against a 1 for 1 share for Praxair's.
These are interesting times for those interested in investing in the gas industry. Energy prices are always subject to fluctuation and are easily influenced by global events. That said, the Praxair Linde merger is an exciting one and one that is set to compensate for some of the industry's recent issues.
I'm personally intrigued to see the outcome of these two Gas giants. What are your opinions in regards to the current changes in the Gas industry & the current mega-merger ?