For the second time in a year, the gases & welding equipment sector is facing transformational consolidation. Industrial gases company Praxair Inc. confirmed this week that it is in preliminary discussions with Linde AG regarding a potential merger – a deal that would create the largest gases supplier in the world with more than $30 billion in annual revenue.
If Praxair and Linde merge, the deal would surpass Air Liquide's $10.3 billion acquisition of Airgas Inc., which closed in May and created a company with annual sales around $23 billion.
That acquisition, coupled with other smaller deals across the sector, will make some suppliers that work with distribution "a little bit nervous," Bill Visintainer, owner, Atlas Welding Supply Co. Inc., Tuscaloosa, AL, and president of the Gases and Welding Distributors Association, told me a couple of months ago.
"As they get fewer and fewer customers that are distributors, I guess those fewer and fewer distributors who are comprising more and more of their sales into the marketplace have a bigger say, don't they?" Visintainer says. "A guy that represents 1 percent of their business doesn't have the same voice as someone who might represent 25 percent of their business."
A deal as big as Air Liquide-Airgas – or potentially Praxair-Linde – gives distributors short-term opportunities yet also presents long-term challenges, according to respondents to the first-quarter MDM-Baird Distribution Survey. "Initially it could be a unique opportunity to increase market share and establish advantages for our customers to work with independent distributors," one respondent said. "Ultimately, however, the pendulum will swing back to price pressure."
Air Liquide has been selling some U.S. facilities by order of the Federal Trade Commission in connection with its acquisition of Airgas. Praxair and Linde also would need to sell assets across all geographic regions, primarily in regional merchant gas markets, Seaport Global Securities analyst Michael Harrison told Bloomberg in a recent article.
Of course, the Praxair-Linde deal may never happen. As Bloomberg reported, a merger this size "would likely trigger antitrust reviews to protect competition in regional markets as well as broader scrutiny of global competition."
"Mergers among industrial gas suppliers have been assessed at a local level in the past, when asset sales have been enough to resolve concerns about overlaps," Jennifer Rie, an analyst with Bloomberg Intelligence, said in the article. "But with a transaction that would leave only three major gas suppliers, antitrust regulators may be worried about consolidation in the industry as a whole."
