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From Antitrust Law Daily, October 22, 2018

FTC approval of Linde, Praxair merger requires divestiture of assets

By George Basharis, J.D.

The FTC will require Linde AG and Praxair, Inc.to divest assets in nine U.S. industrial gas product markets as a condition for the approval of a proposed merger of the two gas producers, it announced today. The FTC is concerned that the proposed $80 billion merger would limit alternative sources of gases used in a number of industries, including oil and gas, steelmaking, health care, and food manufacturing (In the Matter of Linde AG, FTC File No. 171 0068).

The merger of Linde and Praxair would create the largest industrial gas company in the world. According to an administrative complaint by the FTC, the proposed creation of gas giant Linde PLC would enable the firm to exercise market power unilaterally because, for many customers, the merging firms are their two best alternatives. As a result, purchasers of industrial gases likely would pay higher prices. The FTC also fears collusion or coordinated action among the few remaining industrial gas suppliers.

The FTC identified a number of industrial gas markets that would be unable to overcome the anticompetitive effects of the proposed merger because of costly entry barriers. As explained in the FTC’s analysis to aid public comment, these include markets for so-called "atmospheric" gases such as liquid oxygen and nitrogen that are used across many industries, bulk liquid carbon dioxide, which is most commonly used in the food and beverage industry to carbonate beverages and chill or freeze food, bulk liquid hydrogen, which is used as a propellant for rockets, refined helium, which is used in medical applications, and excimer laser gases, which are used in the semiconductor industry to produce computer chips and liquid crystal displays and in medical applications to perform laser vision correction surgery.

The settlement agreement provides for the divestiture of a vast majority of Linde’s U.S. industrial gas business to a joint venture between Messer Group GmbH, a major industrial gas company, and CVC Capital Partners, a private equity firm. Divestiture of the following assets is proposed:

  • Linde’s U.S. bulk liquid oxygen, nitrogen, and argon business.
  • Linde’s U.S. excimer laser gas business and North American liquid hydrogen production facility, along with all related equipment, intellectual property, contracts, and other assets.
  • Linde’s on-site hydrogen and on-site carbon monoxide, or "HyCO," facilities outside the Gulf Coast region, along with Linde’s hydrogen pipeline in the Gulf Coast, intellectual property, customer contracts, and other assets. HyCO is the industry term for on-site provision of hydrogen gas and carbon monoxide gas used by oil and petrochemical companies.

The FTC’s Decision and Order approved the proposed settlement by a vote of 4-1, with Commissioner Rohit Chopra dissenting. According to a statement released by Commissioner Chopra, the agreement does not guarantee that the divestitures will benefit buyers of industrial gas would meaningfully replace competitive market forces that would be eliminated by the proposed merger. The Commissioner also wanted terms in the order that would have required prior notice to and approval by the FTC of any asset sales by the joint venture.

If the agreement is approved, the assets subject to the order must be sold within four months of the settlement, and Linde and Praxair must remain separate and independent companies until the assets are divested. Grant Thornton UK LLP has been appointed Monitor of the parties’ obligations. The agreement also imposes a number of notice and reporting requirements on the companies, and includes an Order to Hold Separate and Maintain Assets. The proposed settlement agreement will be published in the Federal Register for public comment. The comment period will run through November 21, 2018.

The European Commission (EC) conditionally approved the proposed merger between Praxair and Linde on August 20, 2018. The approval was conditioned on the divestiture of an extensive remedy package.

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