Air Products, Air Liquide Will Acquire BOC and Split the Business Between Them
BOC currently is the dominant gas producer in the United Kingdom, with a roughly 60% share of the market. It is less of a factor on the Continent, but does a significant business in Asia and Africa. The company's pretax profits fell 45% in fiscal year 1998, which ended in September, due in large part to the slowdown of Asian economies.
Air Products and Air Liquide plan to form a joint UK-based holding company that will buy all BOC shares for ?14.60/share upon completion of regulatory clearances, which are expected within six months. They will then split BOC between them in approximately equal shares.
Air Products will acquire all BOC operations in Australia and New Zealand. Air Liquide will receive all BOC gases operations in the U.K. and Ireland. In Asia, Air Products will take over significant BOC interests in Singapore, Southern China and Malaysia, while Air Liquide will command BOC businesses in Japan and Thailand.
Both companies will receive some of BOC's US operations, and divide the remaining gases businesses on a country by country or region by region basis.
BOC, which has nearly 40,000 employees in 60 countries around the world, holds a 15% share of the global industrial gases market. Air Liquide is somewhat larger, with a 17% share. The acquisition will boost Air Products' share of the market to roughly 15%, from 8%, making it as large as Praxair, which also holds a 15% share.
The transaction allows Air Liquide to defend its leading market position and catapults Air Products onto the global stage as a major player. "It is consistent with our strategic focus on leading positions where key products, markets and geographies intersect," says Air Products chairman/CEO Hap Wagner. "It increases our focus on high growth areas, particularly in Asia, and enhances our ability to serve our customers while providing exciting opportunities for employees around the world."
The BOC acquisition will lift Air Products to nearly $8 billion in revenues and $13 billion in assets. Operations will expand to 50 countries, from 31 now. The company expects half its business in the Americas, with the other half equally divided between Europe and Asia.
In terms of technology, BOC will bulk up Air Products' offerings in metals, medical and food; enhance its position in specialty gases, helium, and HYCO (hydrogen/carbon monoxide) businesses; and move it into the US merchant market for carbon dioxide.
Air Products expects the transaction will enhance its cash earnings per share (earnings plus amortization, transaction fees and costs per share) from the first full year following completion of the offer and will be accretive to earnings per share post goodwill amortization at the end of year two. Air Products will contribute approximately $5.9 billion in cash to the transaction, funded through a credit facility provided by Chase Manhattan Bank (New York, NY).
The merger comes at a time when BOC's fortunes may be reversing. BOC expanded aggressively in Asia, then suffered when the Asian economic crisis hit. Asia was largely responsible for a 45% decline in BOC profits for the fiscal year ending September 1998.
During the past year, the company restructured to reduce cost. It cut headcount by 10%, sold off its Benelux and German operations to Air Liquide, and refocused on its core businesses.
The BOC acquisition could spark additional mergers by companies afraid of becoming marginalized. Some press reports say Germany's Linde may be in discussions with Messer Griesheim, an industrial gas producer partially owned by Hoechst.
By Alan S. Brown