The Merger with BOC
Strategic Marketing
Atmospheric Carbon Helium Hydrogen Speciality Fuel
Gases Dioxide & Syngas Gases Gases
Oxygen
Nitrogen
Argon
Steel/Metals Food Healthcare Electronics Electronics Fabrication
Chemicals Carbonation Diving Chemicals Lighting Construction
Health Care Water Treatment Labs Refineries Lasers Household/
Pulp & Paper Fumigation Heat Treating Labs Leisure
Electronics Oil recovery Glass Propellants
Food Refrigeration
Water
treatment
Glass
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Journey of the Linde Group
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Linde and BOC
On 21 June 1879, Professor Doctor Carl von Linde founded the Gesellschaft für Linde’s
Eismaschinen Aktiengesellschaft to develop further his work in developing mechanical
refrigeration systems for the brewing and food industries. Following success in this market, he
moved on to developing lower temperature systems resulting in 1895 in a patent covering the
liquefaction of air. Out of this work his company developed equipment for the separation of
air and other gases. One of the first large-scale air separation plants was installed in
Höllriegelskreuth, near Munich in 1903.
Brin's Oxygen Company, Ltd. was formed in 1886 by Arthur and Leon Brin. In the early days
they manufactured oxygen using a high temperature barium oxide process developed from
work by French scientist Jean Baptiste Boussingault.
Its Indian arm was set up in 1935 headquartered in Calcutta. It was known as Indian Oxygen
and Acetylene company.
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Strategic tie ups- BOC and Linde
1906: Linde and Brin's Oxygen Co. agree to use Linde's patents. Linde becomes shareholder in
Brin's. Carl von Linde joins the board, Brin's changes name to The British Oxygen Company
Ltd.
1954: Foundation of Linde-BOC joint venture BOL Ltd. coordinating the technical design and
sales of air separation plants
1969: Foundation of Linde-BOC joint venture in refrigeration solutions
2000: Construction of world's largest nitrogen plant to pump heavy crude oil under high pressure
in the Cantarell Oil fields, Mexico - an innovative joint project involving Linde, BOC and
partners.
2002: Foundation of US engineering joint venture Linde-BOC-Process Plants LLC, Tulsa, Ohio.
2006: Linde and BOC join forces to become the Linde group.
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The Merger
The Linde Group underwent a significant transformation in September 2006, following the
acquisition of The BOC Group. The merger and subsequent disposal of non-gas interests
recast the group as the world's largest pure-play industrial gases supplier.
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Supply Chain
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Reasons for the takeover
I. The five industrial gases companies have a worldwide market share of around 70 percent,
Zayed estimated, with Air Liquide's share at some 21 percent, Praxair's at 15 percent, BOC's
at 13 percent, Air Products at 12 and Linde's at 11 percent. (Reuters).
II. Linde had presence in the western markets and BOC had a firm foothold in the South
East Asian and China markets (the main growth drivers).
III. Linde wanted to consolidate in the industrial gas market due to its growth potential in the
near future. In a mature market inorganic growth seemed to be the best option.
IV. Familiarity with each other also contributed. Linde and BOC had a 100 year long
partnership in various joint ventures.
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How does the acquisition of BOC add value to Linde’s
shareholders?
The acquisition offers significant value potential for Linde’s shareholders from a transition
into a pure play industrial gases company, with the potential for cost and revenue synergies
and an enhanced growth and profitability profile based on the strong complementary nature
of both groups.
Through this transaction, Linde will be ideally positioned in key growth markets and
segments. Across geographies such as Eastern Europe and Asia Pacific and products like
Healthcare and Electronic Gases this transaction will create a leader in four out of seven
growth segments with compounded annual growth rates of between 4 and 15 percent.
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How does the BOC transaction fit into Linde’s strategy?
The industrial gases market has demonstrated stable growth rates of 2 to 2.5 times GDP and is
expected to grow again by 7% over the next four years. This growth will be driven by product
enhancements and new applications to further improve productivity. Looking at the largest
pure-play companies in this sector, they delivered strong EBITDA margins and average EPS
growth of 8% over the last 10 years. The industry is also marked by long-term contracts and
diverse customer segments, making it an attractive, stable business with predictable cash
flows. The combination of Linde and BOC will create a leader in this sector and the scale and
scope will allow us to take full advantage of the growth opportunities in the market.
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What level of synergies is Linde anticipating from the
acquisition? Where will these primarily come from?
The anticipated annual pre-tax cost synergies are approximately €250 million p.a., fully
realised during 2009. They will come equally from more efficient supply management and
production optimization, procurement as well as R&D, and reduction in general and
administrative costs.
In addition to the cost synergies there is significant upside potential from revenue synergies.
Cross-selling of products and services, joint application of innovation and knowledge sharing,
the ability to serve global customers on a global basis and providing engineering and
industrial gases from one source will allow Linde to unlock significant opportunities for
revenue development.
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Expectation
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Take aways
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The transition
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Y-O-Y Sales by Division(in Mn
Euros)
14000
12000
3016
10000 2311
8000
2108 51%
1541
-6%
6000 0.01%
0 9515
4000 8932
6279 6285
2000
0
2006 2007 2008 2009
Gases Engineering
Y-O-Y Operating Profits by Division(in Mn
Euros)
3000
2500 267 210
2000
247
219
1500 41.5%
1.2% 1.6%
2417 2378
1.2
1000
1524 1707
500
0
2006 2007 2008 2009
Gases Engineering
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YOY sales from different categories of
gases(in million Euros)
Competitor’s Commercial Strategy
Praxair
•Acquire market share by lowering prices
•This has significantly impacted medical prices in East & West – Praxair marketed medical gases like a
commodity
•Regional structure and focus on key customers rather than focusing in lines of business
InOx / Air Products
•Primary focus on bulk liquid business; limited presence in compressed business
•Regional focus - large number of small liquid plants to cater for regional demand ; Strong merchant
presence in - South and West - the two fastest growing regions
•Of late has shown great interest in pursuing large tonnage opportunities - contract at Ispat, also pursuing
SAIL vigorously
Air Liquide
•Primary focus on North market at the moment with limited interest in Western India - largely Gujarat
•Investment strategy for India as yet uncertain - more focused on plant sale
Have plant building capability and successfully won a number of plant supply contracts recently
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Conclusion on the basis of PORTER’S
FIVE FORCES MODEL
1. A larger number of suppliers
- increase rivalry because more firms must compete for the same customers and resources.
2. Slow market growth
-In a growing market, firms are able to improve revenues because of the expanding market
3. High storage costs or perishable products
-This cause a producer to sell goods as soon as possible. If other producers are attempting to unload at the
same time, competition for customers intensifies.
4. Low switching costs
-Customers can freely switch from 1 product to another; there is a struggle to capture customers
5. Low levels of product differentiation
-Brand identification tends to constrain rivalry but CO being a commodity product with low product
differentiation has led to the mushrooming of many small players in the sector.
6. Threat from substitutes
-Acetylene is slowly getting replaced by LPG for heavy cutting purposes. CO2 which is still used in many
parts for its use as shielding gas in TIG and MIG welding which is a cheaper option compared to Argo
shield gases. Low purity oxygen has high penetration due to its low price.
7. Buyers
-are fragmented and many in number. Switching costs are low and products are standardized.
8. Entry barriers
-are few as the industry is fairly easy to enter as non-cryogenic methods of production are common among
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small players to cater to the customers at cheaper rates.
Thank you for your attention
