The industrial or specialty gas business isn’t one that many people often think about, but it provides very important products to a wide swath of the economy. Hospitals, food production, industrial manufacturers, and the oil & gas industry each have specific demands for gases such as pure oxygen, helium, and nitrogen, both in the gaseous and liquid state.
The process to remove or “separate” these gases from the atmosphere was perfected over a century ago as the materials and machines of the industrial revolution developed. They provided the ability to compress, heat, and cool air so as to process it and isolate its various components on an industrial scale.
For example, the need for industrial gas can be found at virtually any liquefied natural gas (LNG) facility. Large quantities of nitrogen are used to cool and purge process equipment, pipelines, and storage tanks. Depending upon the nature and size of the plant, liquid nitrogen is either manufactured on site or delivered to the facility and stored in a cryogenic tank called a dewar. (Named after Sir James Dewar, a Scottish chemist/physicist who invented a special vacuum flask to hold low boiling point liquids.)
Only about a half dozen major companies make up the bulk of the global industrial gas business. Recently, this industry sector has been hit particularly hard by the down-cycle in oil & gas and cost cutting in the health-care industry. This has led to attempts by industry participants to consolidate.
A week before Christmas, two of the larger companies, Linde AG of Germany, and Danbury, CT based, Praxair Inc., announced their intent to execute a “merger of equals.” The combined company reportedly would have a market cap of approximately $64 Billion and annual revenue of over $30 Billion.
Interestingly, if approved, this would close the circle in the life of what was originally part of Linde to begin with. Prior to World War I, Linde formed a US division named, Linde Air Products. The division grew such that, after the war, it dwarfed its Teutonic parent.
Union Carbide eventually purchased the company and ran it until 1992, when it was spun off and renamed Praxair. This deal would bring Linde’s American progeny back into the Linde family. The new company is expected to retain the Linde name.
Of course, there are a number of significant issues outstanding and the world is rapidly changing as both companies work to define the details of the reunion.
- Where will the new company domicile in the EU?
- What effect does the current US corporate tax rate have on Linde’s global structure? (In the past, companies engaged in “earning stripping”, loading US operations with debt and deducting interest against the higher US corporate tax bill, essentially shifting US profits overseas.)
- What happens if the Trump administration revamps the entire US corporate tax code?
- How might the governmental approval process be impacted by the newly evolving relationship between the EU and the US under an “America First” doctrine?
As a global business with a significant US presence, the new Linde will also run headlong into changing geopolitical relationships driven by the Trump administration’s foreign policies. Although these policies are only now being developed, it’s a safe bet that they will be markedly different than under the previous administration.
Consider this. It was recently reported that meetings have been underway between Linde’s CEO, Aldo Belloni, and Russia’s Gazprom Management Committee Chairman, Alexey Miller, regarding a cooperation agreement in the oil & gas sector. Supposedly it includes various aspects of Russian hydrocarbon processing, natural gas liquefaction, improving process efficiencies, and high-tech manufacturing, training and development.
How will Washington view such cooperation? How much will the diplomatic and intelligence scandal now unfolding within the Trump White House, combined the uncertainty regarding the direction of US – Russian relations (among others), affect the merger? What influence will “America First” have on the deal? Might these exogenous issues become too risky for the merged company and its shareholders?
Time will tell if it is wise to close the circle in the Linde family at this juncture.
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