MOSCOW (
MRC) -- As the Linde supervisory board gathers to discuss the revived Praxair merger approach at its expected meeting tomorrow, stockbroker Stanford Bernstein has reiterated that it rates the chances of a merger between the two industrial gas giants at only 20%, said
Chemweek.
Praxair last week approached the German company with fresh proposals for a merger of equals to create a world market leader valued at over USD60 billion. These proposals address several concerns that led Linde
to call off earlier merger discussions in September, principally the location of the merged group headquarters, management issues and potential job losses in Germany, according to insider reports.
Bernstein analysts, who were among the first to report several weeks ago that the merger discussions could be revived, believe that the two companies could successfully navigate the various antitrust obstacles around the world, but only after the divestiture of businesses with around USD4.8 billion of sales, or 16% of the merged entity's expected USD30 billion revenues in 2016. To reduce overlaps, Linde would be obliged to divest about USD2 billion of sales in North America, while Praxair would have to shed over USD1.5 billion of sales in Western Europe. Without these divestitures, the combined entity would have market shares of 32-34% in both these key regions, the analysts estimate.
Linde would also have to shed USD960 million of sales in South America, where Praxair has a commanding 42% market share, while Praxair would have to sell USD244 million of onsite sales in China, they add. The analysts believe that the concentrated nature of the industrial gas industry means that many of these divestitures would attract only a very limited number of buyers, again for antitrust reasons, so they are only likely to be made at distressed prices.
Finally, Redenius argues that in a true merger-of-equals, which he says would involve an exchange of 1.55 Praxair shares for one Linde share, Praxair would be paying out nearly all of the anticipated benefits to Linde shareholders, with a 20% upside to Linde's undisturbed share price, but a 3% downside to Praxair's. If a deal were to proceed in the face of all the above risks, Praxair should seek more favorable terms, perhaps involving an exchange of 1.4 or lower Praxair shares for one Linde share, the analyst says.
The Linde Group is a world-leading gases and engineering company with around 62,000 employees in more than 100 countries worldwide.
MRC