Praxair, Linde move closer to $45bn merger
Taiyo Nippon Sanso buys European assets
MUNICH/TOKYO/FRANKFURT: Praxair Inc and Linde AG took a major step toward overcoming antitrust hurdles blocking their planned $45 billion merger by agreeing to sell a raft of industrial-gas plants in Europe to Taiyo Nippon Sanso Corp.
“The Japanese supplier of oxygen and argon to the steel industry will pay €5 billion ($5.9 billion) to expand its reach from Germany to Portugal and over to the UK,’’ the companies said in statements yesterday.
The deal, first reported by Bloomberg News on Wednesday, gives Taiyo Nippon a foothold in the region to compete head on with dominant suppliers Linde and Air Liquide SA of France.
Faced with an in-depth review by antitrust regulators in Europe, the deal shows the two merger partners are prepared to bite the bullet to get the deal done.
The European businesses will allow Taiyo to move toward long-term goals of one trillion yen ($9 billion) in sales, while its emergence in the region assuages concerns voiced by the region’s regulators of dwindling competition in the industrialgases market.
“In this era, M&A abroad is indispensable for survival,” said Minoru Matsuno, president of Tokyo-based investment adviser Value Search Asset Management Co, whose firm doesn’t hold Taiyo Nippon stock.
“Taiyo doesn’t have bases in Europe in the industrial-gas business, so this deal makes sense in terms of the company’s strategic development.”
Taiyo Nippon fell 1% to close at 1,494 yen in Tokyo trading. The company has a market value of 647 billion yen, roughly equivalent to the $5.9 billion it’s paying for the Praxair assets.
Linde shares rose 3.1% to €206.50 at 9.45 a.m. in Frankfurt, boosting its market value to €38 billion.
Taiyo Nippon said it would use cash on hand and bridge loans for the acquisition, then refinance through means including borrowing from financial institutions, issuing corporate bonds, and hybrid financing.
“The company doesn’t plan to use equity financing for the transaction, and will maintain financial soundness while raising funds.’’
The Japanese company had cash, equivalents and short-term investments of 47.8 billion yen as of March 31, according to data compiled by Bloomberg.
Japan Credit Rating Agency has a longterm issuer rating of A+ with a stable outlook for the company, whose majority owner is Mitsubishi Chemical Holdings Corp.
Separately, Linde hasn’t yet reached a decision on an acquirer for US assets that are also slated for sale, according to a person familiar with that process.
Carlyle Group LP, along with a consortium of CVC Capital partners and closely held German industrial-gas maker Messer Group GmbH are pursuing the assets.
Linde and Praxair reached a final agreement in June last year to combine their operations, and said at the time that they expected to close the deal in the second half of 2018.
To allay antitrust concerns, the companies were putting more assets up for sale than expected, according to people with knowledge of the matter in April, after starting the sale of European and US assets that could fetch about $8 billion.
The biggest hurdle facing the US and German industrial-gas giants in their quest to combine is obtaining the green light from the European Commission, which is set to make a decision in August.
Linde and Praxair have a self-imposed Oct 24 limit for getting all regulatory approvals.
They also set a cap on the size of the assets they could dispose of, amounting to combined annual revenue of no more than €3.7 billion, or €1.1 billion in earnings before interest, depreciation and amortisation.
Praxair’s European assets generated Ebitda of €400.8 million last year, rising from €381 million in 2016, according to the Taiyo Nippon statement.
Taiyo Nippon said the closing of its purchase, expected in November, was contingent upon the merger of Linde and Praxair, as well as regulatory approvals.
It plans to make an announcement on its performance in the period through March 2019 as a result of the transaction, and also intends to provide a revised mid-term business plan through March 2021 if the acquisition is completed.