Competition fears over gas buyout

Date: 16/09/1999

By Renée Cordes

AIR Liquide's plan to buy the BOC Group faces a tough ride from EU competition authorities, who are worried that the deal will create a dangerously dominant player in the consolidating industrial gases sector.

France's Air Liquide and US-based Air Products and Chemicals agreed in July to buy British industrial gases company BOC for more than €11.7 billion.

Air Liquide, a strong player on the French market, sees the move as a way to capitalise on BOC's strength in the UK and Ireland. Both companies supply gases such as oxygen, nitrogen and hydrogen to a number of sectors such as the welding, oil-refining, chemicals, food-processing, health care and aerospace industries.

Air Liquide is predicting that sales will jump by about 40% - the equivalent of five years growth - in one fell swoop as a result of its ambitious expansion strategy.

In addition to allowing Air Liquide to move into new European markets, the deal would enhance its presence in the US and reinforce its strong position in Asia, especially Japan. The company is forecasting a 60% surge in overall earnings over the next three years.

But outgoing Competition Commissioner Karel Van Miert warned last week that EU regulators would scrutinise the deal carefully. "It needs to be looked at very thoroughly," he said. However, Commission officials say it is too early to predict whether the institution will extend the investigation beyond its routine one-month review.

The main concern for regulators as they probe the deal is that the sector will eventually be controlled by just a handful of large companies worldwide. "This operation will create the two by far strongest players in Europe," said a spokesman for Van Miert. "Even if the relevant geographic markets for industrial gases are national and the operation does not technically create major overlaps, the operation will combine dominant positions in neighbouring countries. This may lead to further restrictions on actual and potential competition which we must check out."

Competition officials are also concerned that the deal will reduce the number of wholesale helium suppliers to just three worldwide and the number of gas suppliers to the semiconductor industry to four.

However, Air Liquide executives remain confident that the deal will eventually be cleared by EU regulators.

At last week's press conference to unveil the company's half-year earnings, Air Liquide's chairman Alain Joly said the regulatory approval process "was going along as expected".

Analysts say the deal was put together so as to "minimise any regulatory problems", although they believe that some sell-offs might be required. They add that the concerns voiced by competition officials come as no surprise, given the sudden wave of acquisitions in the sector.

"The industry has been stable over a number of years. Everyone said there would be no mergers between the large players, but it suddenly changed with Air Liquide and BOC," said Johan Strandberg, an analyst at Deutsche Bank. "There will always be local issues and the companies will probably have to divest certain assets."

He predicted, for example, that the firms involved might have to dispose of some gas separation facilities.

Hot on the heels of the Air Liquide/BOC deal, German engineering group Linde launched a bid for Swedish gas company AGA, a deal which would create the world's second-largest supplier of on-site production facilities for industrial gases and leave only two smaller industrial gas suppliers.

Linde, the world's seventh-largest industrial gas producer, is a strong player in German-speaking countries and Eastern Europe, while AGA is strong in Scandinavia and North and South America.

However, Lehman Brothers analysts said they did not believe that deal would be blocked by regulators in either Europe or the US.