Linde considers fresh merger overture from Praxair

By Arno Schuetze and Jens Hack

FRANKFURT/MUNICH (Reuters) - U.S. industrial gases group Praxair has revived efforts to combine with German rival Linde, seeking to overcome differences over key personnel and location of headquarters that scuppered previous talks in September.

A person close to Munich-based Linde, which also operates medical gas and engineering businesses, told Reuters that Praxair had tried to address the main stumbling blocks to talks on creating a $60 billion-plus market leader.

Linde's supervisory board is expected to discuss the fresh approach at its next regular meeting on Dec. 7, another person familiar with the matter told Reuters on Wednesday.

Linde shares jumped 6.6 percent to 160 euros, a one-year high, outperforming a broadly unchanged DAX index of German blue-chip stocks.

The failed merger talks led to changes at the top at Linde, with finance chief Georg Denoke leaving immediately and Chief Executive Wolfgang Buechele staying on only until April.

That leaves Chairman Wolfgang Reitzle, Buechele predecessor as CEO, as the most powerful figure at Linde.

Reitzle was seen as a driving force behind the initial merger talks but now faces the challenges of having to rebuild the group's leadership, cut costs and deal with the U.S. suitor.

Buechele said in October that a revival of merger talks was not on the cards and put the emphasis on a further restructuring to respond to low growth.

TOUGH TIMES

Linde, Praxair and peers Air Liquide and Air Products are struggling with slower economic growth that has weakened demand in the manufacturing, metals and energy sectors, putting pressure on smaller players and leading to consolidation in the sector.

Air Liquide bought Airgas Inc, the leader in U.S. packaged gases, in a $13.4 billion transaction finalised in May.

Linde said late on Tuesday it was looking into a revised proposal it had received from Praxair about a merger of equals. Praxair later confirmed it approached Linde about resuming discussions about a potential merger.

"We believe a merger could offer at least 13 percent upside to our standalone value for Linde," said UBS analyst Geoff Haire.

The cutbacks Linde is pursuing on its own "may not be enough to offset the impact of the low growth environment for gases coupled with continued pressure on healthcare pricing in the U.S. and limited growth for Engineering," Haire added.

Praxair CEO Steve Angel said last month that his team had not had the chance to fully assess the future role of Linde's headquarters within a combined entity when talks ended and that he was open to resuming discussions.

But negotiations are likely to be tough.

"We expect Linde to try to command very favourable merger terms (share exchange ratio, Munich location, etc.) which Praxair, who is known for its bidding discipline, will struggle to accept," Bernstein analyst Jeremy Redenius said in a note on Wednesday.

Praxair generates lower core earnings but with a higher margin over sales than its German peer. Both groups carry a broadly similar value on the stock market, Linde having a market capitalisation of around 28 billion euros ($29.82 billion), compared with a figure of $35 billion for Praxair.

(Writing by Ludwig Burger; Editing by Keith Weir)