Buying Praxair’s European business out of the Linde merger (2018)

The blank filled by acquisition, and the weight of what came with it

The heart of this decision is that a blank on the map — Europe, which the company could never have reached under its own power — was filled at a stroke by a one-off divestiture created by a merger among the global majors. Industrial gas is a business of surfaces: you site your plants near where the gas is consumed, and entering a region where you have no ground is extremely hard. Seizing the moment when competition authorities demanded that an oligopoly be corrected, and swiftly shifting aim from the United States, which had been the original target, to Europe, can be read as a choice grounded in the nature of the business — that the regional network is the competitive advantage. That it carried through a global strategy as a pure-play industrial gas company while sitting under Mitsubishi Chemical also shows in how the opportunity was taken.

That said, what the company took on as the price of filling that blank is not light. Interest-bearing debt swelled toward ¥1 trillion, bringing with it a different problem: the soundness of the balance sheet. The subsequent expansion in results bears out the soundness of the acquisition’s economics, but how the fruit earned is directed toward repairing the finances, and how much freedom of capital allocation can be secured within the relationship with the parent company, remain open questions. An acquisition that filled a blank secured fourth place in the world; how the weight taken on there is reconciled from here will decide how this judgment is assessed.