(Reuters) - Praxair Inc's contemplated merger with Linde AG would cut the number of global industrial gas suppliers to three from four, posing antitrust challenges and drawing scrutiny from regulators wary of more mega deals.
Antitrust experts said the companies, which announced they were in early-stage talks on Tuesday, would likely have to agree to divestitures to create the world's largest industrial gas company with a market value of more than $60 billion.
"It does strike me as a deal that will prompt serious antitrust scrutiny. Antitrust enforcers will want to look at submarkets," said Seth Bloom, formerly of the U.S. Department of Justice's Antitrust Division and now in private practice.
Antitrust authorities have been flexing muscle regarding transformative mergers. Deals they have challenged include Anthem’s $45 billion purchase of Cigna, Aetna’s $33 billion acquisition of Humana, and U.S. oilfield services provider Halliburton Co's $34.6 billion acquisition of Baker Hughes Inc.
Consolidation in industrial gases, including Air Liquide SA's $13 billion acquisition of Airgas in May, has left Air Liquide, Linde, Praxair and Air Products and Chemicals Inc providing most of the oxygen, nitrogen, argon and other gases to industries ranging from oil companies to drugmakers.
Air Liquide has 29 percent of the U.S. industrial gas market, Praxair has 21 percent, Linde has 15 percent and Air Products has 14 percent, according to the most recent annual data from industry news provider gasworld Business Intelligence. A merger of Praxair and Linde would create a sector leader with 36 percent of the U.S. market.
The story is similar in Europe, where Air Liquide has 32 percent of the market, Linde has 30 percent, Air Products has 13 percent and Praxair has 7 percent, according to gasworld.
Such market shares would give regulators on both sides of the Atlantic pause, antitrust experts said. Praxair and Linde will likely have to review their business with regulators market by market, in regions as small as one metropolitan area, experts said.
"There will be a settlement offer, and the question will be whether the U.S. Federal Trade Commission (FTC) thinks it's enough," said Ethan Glass of the law firm Quinn Emanuel Urquhart and Sullivan LLP, who argued for the U.S. Department of Justice as it sought to stop Electrolux AB from buying General Electric Co's appliance business.
Air Liquide's acquisition of Airgas offers some insight into the scrutiny to be expected. When the U.S. Federal Trade Commission reviewed the deal, it required a divestiture of assets to preserve competition for dry ice in the San Francisco Bay area.
Adding to the uncertainty are questions over the FTC's composition next year. The final decision on antitrust clearance will likely be made by the next administration, since a new U.S. president will take office in January and a major antitrust review can last a year.
The FTC, which normally has five commissioners, currently has three: two Democrats and a Republican.
Reporting by Diane Bartz in Washington, D.C.; Editing by Greg Roumeliotis and Matthew Lewis