Commentary: Linde/Praxair scrutiny

18 August 2016 22:30 Source:ICIS Chemical Business

Industrial gases producers have been struggling to grow, as China’s economic realignment and the oil price crash have eaten away at the core of their business with large industrial consumers.

Gases are essential elements in so many industrial processes.

And in a world growing at a steady pace the industrial gases business is fairly simple, albeit highly nuanced – win lucrative long-term supply contracts for big consumers across multiple industries.

The packaged gases market is particularly geographic-specific with the major players having key strengths in different locations.



The Linde Supervisory Board in 1932 with company founder Carl von Linde (centre) at age 90

The talks going on now between Germany’s Linde and the US industrial gases maker Praxair illuminate management thinking.

The world has changed. Big consumers are more circumspect in the low oil price environment. The oil industry capital spending downturn has hit industrial gases producers hard.

Targets set before the oil price crash, and certainly before it became clearer that economic stagnation was much more of a threat, will not be achieved without radical change.

Linde and Praxair might be expected to grow more strongly together than apart.

The cost synergies highlighted by investment analysts look very attractive. But industry concentration is also an issue that could bust the deal.

Bernstein Research points out that Linde and Praxair together have a 40% share of the industrial gases market (Air Liquide and Airgas have 28%).

The market is dominated by the big four producers: Air Liquide, Linde, Praxair and Air Products, while Japan’s TNSC has a share of about 5%, according to Bernstein. Bernstein puts the probability of a completed merger at 40% and notes that anti-trust issues will be a major complication.

Some see potential hurdles as being overcome relatively easily and little of a geographical overlap but, as Bernstein points out, a merger would significantly concentrate the market for new on-site contracts for industrial gases.

This would be an issue for regulators made even more so by the fact that the market for new on-site contracts is probably more concentrated than it appears because of the specific expertise of the four major providers and their own geographic and/or customer relationships. “A potential remedy could be the divestiture of a large portion of Linde’s on-site project capabilities (rather than [existing] on-site plants) to a producer outside the big four,” Bernstein noted.

How that might play out for a company such as Linde which relies so heavily on the synergies between its engineering and industrial gases businesses and its many customers in the chemical industry remains to be seen.

UBS analyst John Roberts points out that on a geographic basis, a combined Praxair/Linde could have around 30% share in Western Europe, 45% in the US and higher in parts of Latin America (especially Brazil). “Globally, around 70% of the outsourced industrial gases market would go from 4 suppliers to 3 (similar to US homecenter housepaint suppliers going from 4 to 3 with the Sherwin-Williams deal for Valspar). So antitrust concerns by investors are no surprise… But consolidation in the gases market has been ongoing for years, and we suspect antitrust issues are being thought through,” said Roberts.


Praxair was founded as the Linde Air Products Company in 1907 and became a part of the Union Carbide and Carbon Corporation in 1917. Praxair was spun off from Union Carbide in 1992.

Carl von Linde invented the first industrial scale air separation and liquefaction processes for the food and brewing industries, and founded the company that bears his name in the 19th century. In 1920, Union Carbide built the first commercial ethylene plant. It goes without saying that industrial gases and chemicals are inextricably linked.

While Linde was once the world’s largest industrial gases player, it is no longer, and both it and Praxair are in a period of growth uncertainty. But is a merger with Praxair the answer?

  • Additional information by Joseph Chang
By Nigel Davis