This paper and its author offer no guarantees as to completeness and correctness Research: Prodeep Mookerjee

prodeep.mookerjee@gmail.com

BACKGROUND The consolidation moves in the Industrial gases sector Air Liquide/Air Gas and Linde/Praxair INDUSTRIAL GAS MAJORS

On a global platform, the Industrial Gases (or air-gas) sector includes four global companies; ‘the Majors’ - Air Liquide of France and market leader, the German Linde Group, and two American players, Air Products & Chemicals and Praxair. Barometric Stocks: Stocks of the Majors in the industrial gas sector are considered good barometers of economic and industrial activity, these companies being global suppliers of basic materials used across the industrial spectrum. The tendency to react to macro trends is particularly in evidence today with the Majors shifting their geographic and technological focus in tandem with global adjustments in industrial activity. Determinants driving policy include the OECD sovereign debt crisis, emergent patterns of geo-political risk in the OPEC club, the increasing weight of developing economies, global climate-change and the volatility in the cost of and demand for energy. Cyclical Hedging: The Majors are driven by economic tides but they also have structural ‘hedges’; stable revenue streams based on long-term, ‘over-the-fence’ contracts and piped gas networks in industrial clusters, servicing a broad range of clients. The two sector leaders have also aggressively built-up their healthcare (homecare) market shares, a typically noncyclical business segment, even while the other two have divested their interests in healthcare after initially having followed the M&A driven trend. Competitive Position: A look at the history of the Majors reveals a picture of a close-knit group with many common roots; an exclusive group that has long eaten from the same table, and eaten well. Yet they are extremely competitive, periodically viewing the other with cannibalistic intent, forging opportunistic alliances, sharing the ‘spoils’ when required to by regulatory barriers and continually jockeying for position in every available market.

It’s not businesses that succeed – it’s the people…

Air Liquide

Benoît Potier Chairman and Chief Executive Officer since 2006

Employees: 68,000 Linde Group

Wolfgang Büchele, (r) President and Chief Executive Officer since 2014

Employees: 64,500 Mr. Büchele took over from Wolfgang Reitzle, who led Linde’s steady and continuous growth for a decade. Büchele issued one profit warning after another, and market sentiment was negative. Wolfgang Reitzle returned to the company earlier this year as head of its supervisory board.

Praxair

Stephen F Angel Chairman, President and Chief Executive Officer since 2007

Employees: 27000 Air Products & Chemicals

Seifi Ghasemi Chairman, President and Chief Executive Officer since June 2014

Employees: 20,000 Air Products investors expect him to be the catalyst for improved operational performance, profitability and return on capital.

The market leader, Air Liquide, is noted for adopting a particularly aggressive decentralized approach, reflecting perhaps remnants of a cultural ethos from France’s colonial past. The Linde Group’s market approach, on the other hand, demonstrates reliance on technological competencies buoyed by some of the pioneering spirit of the British imbibed, perhaps, through the BOC takeover. It has an international flavor in the higher echelons of the company which it sees as a differentiating advantage. Both Air Liquide and Linde are true international companies in ‘footprint’ and vision. Praxair and Air Products are quintessentially ‘American’ companies; quick on their feet and with an ‘us and them’ view of the world. With controlling market shares in the US and locational access to target countries in the Americas they have a market base even as they make inroads in the BRIC countries and the Middle East armed with long standing relationships with the US oil majors.

Growth: In the near and mid-term, growth in the industrial gas market is expected to continue to exceed that of industrial production, driven by a multitude of factors including: coming on stream of start-ups, growth of emerging economies, increasing demand for energy, environment and emissions regulation, older populations and an expanding healthcare sector, with advancements in industrial technology defining the landscape. Innovation and Consolidation: R&D activity is focused on emerging application areas and efficiency:

Hydrogen the ‘Green molecule’; reduction in costs and the energy intensity of

gas separation technology with new compression options including the Dresser-Rand supported Ramgen project, reduced plant size and hybrid solvents, pressure calibrated membrane banks and sorbent ‘swing’ control;

Business-process optimization with EWSs like SAP; sub-system GPS/RFID asset management.

2015 Air Liquide

Linde Group

Praxair Air Products

Mkt. Cap 34.08B€ 28.92B€ 34.84B$ 34.08$ Shares-Million 345.6 185.73 285.23 216.55 Gross Yield % 2.64 1.64 2.46 2.17 Sales 16.38B€ 17.94B€ 10.78B$ 9.89B$ Operating Profit %

15.99 12.08 22.57 21.18

Net Profit % 10.82 7.50 15.07 15.63

Air Liquide: FT.com: The 20 analysts offering 12 month price targets have a median target of 101.50, with a high estimate of 130.00 and a low estimate of 80.00. The median estimate represents a 2.94% increase from the last price of 98.60.

Linde: FT.com: The 26 analysts offering 12 month price targets have a median target of 150.00, with a high estimate of 180.00 and a low estimate of 110.00. The median estimate represents a -1.99% decrease from the last price of 153.05.

Praxair: FT.com: The 16 analysts offering 12 month price targets have a median target of 125.00, with a high estimate of 149.00 and a low estimate of 112.00. The median estimate represents a 2.32% increase from the last price of 122.16.

Air Products: FT.com: The 16 analysts offering 12 month price targets have a median target of 161.50, with a high estimate of 180.00 and a low estimate of 125.00. The median estimate represents a 2.60% increase from the last price of 157.40.

Share Prices and Forecasts

Simultaneously, consolidation of the expanded organizational and human resource base, a result of their frenetic M&A activity over the last decade, will propel the growth of the Majors in the global market. A development in FEED competencies is also evidenced which plays in well with ‘first-in’ advantage and scope enhancement possibilities in the process plant business generally.

Market Trends: Market research reports agree that the US continues to remain the largest regional market. Region-wise, the Asia-Pacific is projected to witness maximum growth prospects for industrial gases, followed by Latin America and the Middle East. India and China offer high potential in a cost-competitive market with the focus on infrastructure development and the increasing concentration of the light engineering, electronics and food processing industries in these regions.

Worldwide, there is recognition of the inevitability of unprecedented public and private investment driven by ‘carbon capture’ targets and the need to mitigate the ill-effects of climate change. In this context the conventional and non-conventional energy sectors, hydrocarbon processing and refining as well as water processing and management are areas of particular interest to the Majors. The Majors and the ‘others’ continue evaluating mega-projects, negotiating joint ventures and funding strategic acquisition of local firms in most economies, in their endeavor to gain market share and ensure their success in the new millennium.

The ‘Others’ Prominent regional companies include Airgas (in the US), Taiyo Nippon Sanso (in Asia and the US), and Messer (in Europe and also China, Algeria and Peru). New competitors making a mark include the Chinese Hangzhou Oxygen Plant Group Co, Ltd (manufacturing ASUs - air separation units), Yindge Gases also in China, and Cryogenmash (making ASUs) in Russia. Besides, there are thousands of others, medium and small players, in local markets.