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By: IBISWorld Analyst, Thomas Larson
FOR IMMEDIATE RELEASE
LOS ANGELES – June 5, 2017 – After announcing their intent to merge in the closing days of 2016, global industrial gas market leaders Praxair and the Linde Group have completed a deal worth over $70 billion that is being called a “merger of equals.” The US-based Praxair and German multinational Linde Group will unite under the Linde name, and be listed on the New York Stock Exchange as well as the Frankfurt Stock Exchange. Interestingly, the companies operated as a single entity over 100 years ago, but the outbreak of World War I led to the initial split. The new holding company will be based in Ireland, but still conduct business out of established offices in Connecticut and Britain.
Both companies are two of the largest players by market share in the Industrial Use Gases and Noble & Elemental Gases markets – two already highly concentrated markets due to regular merger and acquisition activity in the three years to 2017. The newly expanded company will be able to better compete with Air Liquide, another key player in these markets. Air Liquide, a French gas company, acquired US-based Airgas in May of 2016 to grow their presence in the market and better compete in North America. However, the size of the Praxair and Linde Group merger significantly overshadows the Air Liquide deal, which was valued at only $13.4 billion. In the industrial use gases and noble and elemental gas markets, IBISWorld anticipates this blockbuster merger may not be the last. As smaller sized companies recognize the threat posed from the largest market leaders, they are also expected to consolidate in an effort to grow their market share and remain competitive. As a result, market share concentration will likely increase further in the next three years.
The Praxair–Linde Group merger is expected to have a wide-reaching impact on the noble, elemental and other industrial gas markets. Unfortunately for buyers, market share concentration in both gas markets is already high, with the top four vendors, including Linde and Praxair, controlling over 50.0% of market revenue. As market share concentration increases, suppliers have more control of pricing. To this end, price-based competition among suppliers is diminished, meaning buyers from key segments – such as construction firms, beverage manufacturers and healthcare providers – could possibly lose leverage during negotiations once the merger is finalized.
Fortunately for buyers, it is likely there will be more opportunities for discounts as globalization in the market is expected to increase as a result of the merger. Gases are difficult to transport due to the logistics of shipping heavy, pressurized tanks. Noble and element gas imports, in addition to industrial use gas imports, both constitute less than 5.0% of domestic demand. Because the new company is uniting a major vendor in the North American market with a major vendor in European markets, it will become easier for buyers with international operations to source gases from a single supplier. As a result, buyers can leverage larger volume orders with a single supplier to earn price discounts.
While the agreement is now legally binding, the deal must still pass regulatory scrutiny from 25 global anti-trust agencies. Both companies have already prepared required divestments, however, to satisfy regulators. All told, the deal is not expected to close until the latter half of 2018. Thus, buyers have time to prepare for the changing market landscape.