Yingde Gases emerges as new piece in global industrial gas sector consolidation puzzle

PUBLISHED : Saturday, 04 March, 2017, 9:02am
UPDATED : Saturday, 04 March, 2017, 9:01am

Yingde Gases Group’s potential takeover by a global rival, if realised, would provide another example of the ongoing consolidation in the industrial gases sector and accelerate the “musical chair” match making in the sector.

Industrial gases – such as nitrogen, oxygen, hydrogen, argon and helium – are used in a wide range of industries from steel to chemical manufacturing, as well as for medical, welding and glass-cutting purposes.

According to a Morgan Stanley research report published in early January, a month before it was appointed to advise Yingde’s board to evaluate possible takeover offers, Air Products had around US$3 billion of excess cash following a separate listing of its advanced electronic materials unit Versum Materials.

“Air Products management has been clear that it would look to redeploy this cash flow, with acquisitions being called out as a key priority, though only if the return parameters were in excess of its hurdle rate,” the report said.

“Air Products is also looking at a variety of opportunities [to buy on-site plants], but this would likely require a series of transactions which could take time ... whereas a Yingde transaction would allow for a single substantial investment in a concentrated geography, which in turn could mean greater synergies.”

Air Products management has been clear that it would look to redeploy this cash flow, with acquisitions being called out as a key priority
Morgan Stanley report

It added that it was a “good time” for Air Products to pursue acquisitions while the other three of the “big four” global industry players were “occupied” with mergers and acquisitions already completed or in progress.

Air Products on Thursday reaffirmed its interest in Shanghai-based Yingde a day after buyout fund PAG Asia offered to buy Yingde shares at HK$6 each, matching the top end of the HK$5.5 to HK$6 range Air Products may offer.

Air Products said the “combination of Yingde and Air Products makes significant strategic and financial sense and would be of great benefit to investors, customers and employees of both companies”.

The combined market share in China of Yingde and Air Products in 2015 was 22 per cent, higher than leader Air Liquide’s 14 per cent, according to London-based consultancy gasworld Business Intelligence.

Munich, Germany-based Linde in December last year announced a US$65 billion all-share “merger of equals” with Connecticut, US-based Praxair.

The companies said the deal would combine “Linde’s long-standing leadership in technology with Praxair’s operational excellence” and create “a more diverse and balanced end-market portfolio”.

They estimated US$1 billion worth of annual “synergies” from the merger in terms of cost savings and efficiency gains.

When completed, it would further bolster Linde’s leadership position as the world’s largest industrial gas supplier by market share.

Linde and Praxair – the largest and third largest global players by revenue respectively – would have a combined worldwide market share of 34 per cent, according to 2015 figures compiled by gasworld, which said the industry’ total sales amounted to US$71.5 billion that year.

The merged entity – to be known as Linde – would significantly boost its lead over Paris-based Air Liquide, which had a 20 per cent global share in 2015.

While Linde and Praxair are working to finalise terms of their merger, opposition by a German trade union – which could block the deal – has resurfaced after it was learned that Praxair’s chief executive has promised to run the merged company in the style of more profitable Praxair, according to a Reuters report.

Meanwhile, Paris-based Air Liquide is “both integrating and servicing debt” for its acquisition of Airgas completed in May last year, the Morgan Stanley report said.

Yingde may not be the only potential acquisition target of Air Products, the investment bank noted, given that the Praxair and Linde merger, if completed, could potentially require “divestures that Air Products and or others might wish to pursue”.