See the news release that corresponds to this position statement.
On October 26, 2018, the Commissioner of Competition (Commissioner) entered into a consent agreement with Linde AG (Linde) and Praxair, Inc. (Praxair) that resolves competition concerns in Canada related to the proposed merger between these two companies.
Linde and Praxair are both global companies that are involved in the supply of various industrial gases and related products. The Bureau determined that the merger between Linde and Praxair would likely result in a substantial lessening of competition in markets for the supply of specific industrial gases in Canada. The consent agreement requires the sale of Linde’s Canadian business, including production facilities, filling stations, retail sites, customer and supply contracts, and certain intellectual property.
The Commissioner has approved Messer Canada Inc. (Messer) as an acceptable purchaser of Linde’s Canadian business.
Throughout its review, the Bureau cooperated with its counterparts in other jurisdictions, including the U.S. Federal Trade Commission (U.S. FTC) and the European Commission. As some assets being sold serve both U.S. and Canadian customers, the Bureau worked closely with the U.S. FTC in order to obtain an effective remedy.
In the course of its review, the Bureau conducted interviews with a wide range of stakeholders including customers, competitors and suppliers. The Bureau also reviewed documents and analyzed data that it collected throughout its investigation.
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On June 1, 2017, Linde and Praxair (the Parties) announced a business combination agreement in an all-stock merger of equals transaction. The Parties both operate production facilities and a network of filling stations and retail branches in Canada, through which they distribute industrial gases to customers across a wide range of industries.
Industrial gases as a broad term describes gases that are used for industrial or specialty applications, including the preservation of food and beverages, the manufacture of electronics, the welding and cutting of metals and laboratory research. Some gases are abundant in the atmosphere and can be separated through air separation units (e.g. nitrogen). Other gases exist in smaller quantities and require larger and more complex equipment to separate (e.g. krypton), or are produced as by-products in other processes (e.g. helium).
Industrial gases are supplied to customers in one of three formats, depending on the volume of gas being delivered: packaged, bulk or tonnage. Generally, packaged gas represents relatively low volumes of gas delivered in cylinders; bulk gas represents higher volumes of gas filled into large tanks on a customer’s property; and tonnage gas represents high volumes of gas delivered directly to a customer from a production facility built on that customer’s property or delivered through a pipeline.
The Parties compete for the supply of various packaged, bulk and tonnage industrial gases. Each industrial gas has distinct properties and applications that limit their substitutability. The delivery format of a gas is dependent on a customer’s particular volume requirements and therefore switching between formats is often not economical.
The Bureau found that a local or regional presence is often critical to a supplier’s ability to deliver gases to customers in a reliable and timely manner. The distances that gases travel also depend on the value of the particular gas, the volume of gas being delivered and overall transportation costs. For example, krypton, which exists in small quantities in the atmosphere and requires more resources to separate, may travel considerably further distances than nitrogen, which is abundant in the atmosphere and can be separated with fewer resources.
The Bureau identified Linde, Praxair and Air Liquide Canada Inc. as the three major suppliers of industrial gases in Canada. They each have production facilities and large asset networks across Canada used to supply industrial gases to customers. Air Products Canada Ltd. is also a major supplier of industrial gases in Canada, but it is notably not present in the supply of packaged industrial gases. The Bureau determined that the Parties compete closely for the supply of industrial gases in Canada and that, absent the remedy, the merger would leave customers with only two competitive supply options in many instances.
The Bureau found that firms generally have limited ability to enter or expand in the industrial gases segment in Canada. Effective competitors require reliable access to gas supply and distribution assets to serve customers on a regional basis. Reliable gas supply is usually accessed by building a production facility, which requires significant capital investment, or by securing supply contracts for gases that are produced as by-products in other processes, which are in limited quantity. Given long term customer contracts, which are commonplace in this industry, it may be difficult to justify investments necessary to build competitive distribution networks and gain market share in the long term. Suppliers looking to enter or expand are most likely to do so through acquisition. The Bureau determined that entry or expansion in Canada’s mature industrial gases segment is unlikely to occur in a timely manner and on a sufficient scale to effectively compete in Canada.
Based on its analysis, the Bureau concluded that the proposed business combination between Linde and Praxair would likely substantially lessen competition in markets for the supply of oxygen, nitrogen, argon, carbon dioxide, acetylene, nitrous oxide, hydrogen, helium, xenon, neon, krypton and mixtures containing one or more of such gases in various regions in Canada.
In order to remedy the Commissioner’s concerns related to industrial gases, the consent agreement registered with the Competition Tribunal requires Linde to divest all of its Canadian business to a purchaser acceptable to the Commissioner.
Linde’s Canadian business is part of the Parties’ Americas divestiture package that is expected to be divested to Messer, which also includes assets of the Parties in the US and South America. The Parties are also expected to divest assets in other parts of the world, including Europe, relating to their proposed business combination.
The Commissioner has approved Messer as an acceptable purchaser and, pursuant to the consent agreement, following the combination between Linde and Praxair, the Parties are expected to complete the sale of Linde’s Canadian business to Messer. Messer’s parent company, Messer Group GmbH, is a major supplier of packaged, bulk and tonnage industrial gases in Europe and Asia. The Bureau determined that Messer has the financial, operational and managerial capabilities to operate the divested business, and is committed to competing for the supply of industrial gases in Canada. Furthermore, the sale of Linde’s industrial gases business to Messer does not raise any competition concerns in Canada. In the event that Linde fails to complete the divestiture within an agreed upon time period, the Commissioner will appoint a divestiture trustee to complete the divestiture to another buyer.
The Commissioner is satisfied that the terms of this remedy, as set out in the consent agreement, will preserve competition in markets for the supply of specific industrial gases in Canada.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.