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COMPETITION TRIBUNAL OF SOUTH AFRICA

Case No.: 40/LM/May06

In the matter between:

LINDE AKTIENGESELLSCHAFT Acquiring Firm

and

THE BOC GROUP PLC Target Firm

_______________________________________________________________

Panel : N Manoim (Presiding Member), L Reyburn (Tribunal

Member), and M Mokuena (Tribunal Member)

Heard on : 02 August 2006

Order issued on : 02 August 2006

Reasons issued on : 20 December 2006

REASONS FOR THE ORDER

Approval

[1] The Competition Tribunal issued a Merger Clearance Certificate on 02 August 2006 approving without conditions the proposed merger between Linde Aktiengesellschaft (“Linde AG”) and the BOC Group plc (“BOC”).¹

The parties and the merger transaction

[2] Linde AG is a publicly listed company incorporated under German law whose shares are traded on the German stock Exchanges (i.e., Berlin, Dusseldorf, Frankfurt (Main), Hamburg, Munich and Stuttgart) as well as on the SWX in Zurich. No single shareholder controls Linde AG.² Linde AG is a global entity which operates through established subsidiaries in each country in which it undertakes its commercial activities.³ Linde AG solely controls two subsidiaries in South Africa, which are: Linde Material Handling (Pty) Ltd (“LMH”) and Linde Process Plants (Pty) Ltd (“LPP”).⁴

[3] BOC is a company incorporated under English law (that is, under the company laws of England and the Wales). BOC is listed on the London Stock Exchange and has no controlling shareholders. BOC controls a number of firms worldwide. According to the merging parties, none of BOC’s global subsidiaries have any relevance to the proposed transaction. However, BOC controls the following two firms in South Africa – both of which are relevant for purposes of our analysis – African Oxygen Ltd (“Afrox”) and BOC Edwards South Africa (Pty) Ltd.

[4] In terms of the proposed transaction, Linde AG will acquire the entire issued share capital of BOC.⁵ Once approved, the proposed transaction would confer upon BOC the capacity to exercise sole control over the operations of BOC. BOC will accordingly become a wholly owned subsidiary of Linde AG and will form part of Linde AG’s ‘Gas and Engineering” division. The merging parties intend to implement the proposed deal / offer by way of a court (High Court of England and Wales) approved scheme of arrangement under section 425 of the United Kingdom Companies Act, 1985.

Rationale for the transaction

[5] The merging parties submitted that the proposed transaction provided them with the opportunity to create a leading worldwide focused industrial gases business. Linde AG believes that the proposed acquisition will further enhance its proven capability to execute a profitable growth strategy. Linde AG further submitted that Linde AG will – through this transaction – combine the best competencies and abilities of both organisations in a single integrated whole and will be able to offer their customers a significantly enlarged product range as well as comprehensive services. According to Linde AG, all these will be achievable worldwide.⁶ Commenting on the offer, Tony Isaac (CEO of BOC) said that “the offer represents an excellent opportunity for BOC shareholders to realise significant value in cash from their investment…and that the combination of BOC and Linde will create an even more powerful international gases group, with significant operations on all five continents, that will benefit both its customers and staff in the years to come”.⁷

The relevant market

[6] As already alluded to above, both the merging firms are global entities which operate through their respective subsidiaries worldwide, including South Africa. We will for purposes of this transaction outline these parties’ activities in the global market as well as in South Africa.

[7] Internationally, both Linde AG and BOC offer a broad range of gases worldwide to customers in a wide variety of different industries. The gases cover standard industrial gases, such as hydrogen, oxygen, nitrogen and argon; medical gases, such as oxygen for medical use and nitrous oxides; specialty gases, such as various refrigerants and calibration mixtures, and helium. Linde is moreover active in the industrial gases plant construction business and the manufacturing of forklift trucks and warehouse equipment (the so-called “material handling”).⁸ BOC has, furthermore, some activities in the logistics sector. BOC’s activities are related to and/or conducted through: Process Gas Solutions; ⁹ Industrial and Special Products; ¹⁰ BOC Edwards; ¹¹ and Gist.¹²

[8] According to the merging parties, the parties’ activities - on a worldwide basis - are complementary in terms of geography. They further submitted that while both parties are major players in the global gases business, BOC has a strong focus on growth markets such as Asia, where Linde has little or no presence.¹³

[9] It therefore follows from the above that the merging parties’ activities overlap quite significantly internationally. As can be seen from below, such overlap seems minimal with regards to the South African market – the overlap being in relation to the production and supply of ‘specialty gases’.

[10] Linde’s activities in South Africa are mainly focused on material handling; and engineering / plant construction. As already indicated above, Linde AG offers the former product through its wholly owned subsidiary, Linde Material Handling (Pty) Ltd (“LMH”), whilst the latter product is offered through Linde Process Plants (Pty) Ltd (“LPP”), another Linde AG subsidiary. According to the merging parties, Linde has no activity in South Africa that relates to industrial / medical gases. It has only minor activities with regard to specialty gases. We discuss below what each of these products entail.

[11] LMH operates as a sale and service organisation with a network of branches and dealers throughout the Southern African region. LMH sells the complete range of Linde material handling equipment which includes pallet jacks and motorized pallet trucks, pallet stackers, reach trucks, electric counter balance trucks, electric tow tractors, diesel and liquefied petroleum gas counter balance trucks, container handlers and side-loaders. In addition to these products, LMG also offers an after-sales service to its customers.¹⁴ LPP provides business consultancy services to Linde AG in the field of engineering.¹⁵

[12] In addition, Linde also designs and constructs turn-key plants.¹⁶ We now turn to consider Linde AG’s activities with respect to gases.

[13] The merging parties submitted that the local activities of Linde AG, with respect to gases, is limited to sales of specialty gases, which in turn is limited to four (4) gases, viz., ethylene (classified in the sub-category of chemical gases); Xenon (a noble gas, which falls within the sub-category of lighting gases); calibration gases; and propylene oxide (classified as a chemical gas). The merging parties advised us that Linde AG’s sales of specialty gases to customers are concluded directly between the local customer and Linde Gas in Germany.

[14] BOC is involved in the production and distribution of industrial gases and related equipment, distribution services and vacuum technology. It produces and markets the main atmospheric gases¹⁷ (nitrogen, oxygen and argon), hydrogen, carbon dioxide, helium, acetylene, carbon monoxide, syngas (a mixture of hydrogen and carbon monoxide), liquid petroleum gas and specialty gases.

[15] BOC’s operations in South Africa are conducted through the Afrox group of companies¹⁸ and through BOC Edwards South Africa.¹⁹ These companies are involved in a diverse range of business activities ranging from the manufacturing and marketing of gases, welding products and a wide range of specialised high-technology industrial products.

Product Overlap

[16] Below is a summary in a table form, which reflects the merging parties’ activities relevant to South Africa.

PRODUCT	LINDE AG	BOC
Standard Industrial / Medical Gases	Has no local activities in this market segment	Is active in this market segment
Helium	Has no local activities in this market segment	Is active in this market segment
Engineering / Process Plant Construction	Is active in this market segment	Has no local or international activities in this market segment20
Specialty Gases	Is active locally in this market segment	Also active locally in this market segment
Material Handling	Is active locally in this market segment	Has no local or international activities

[17] What one sees from the above table is that the businesses of Linde AG and BOC (within South Africa) mainly overlap in the production and supply of ‘specialty gases’.²¹ The merging parties contended that within this ‘specialty gases’ market segment, the overlaps are limited to the sale of ethylene²² and calibration gases. They further contended that whilst both parties are involved in the ‘specialty gases’ market segment locally, Linde AG has de minimis local activities in this market segment. Linde AG has no local South African sales office. According to the merging parties, Linde AG’s minor sales to South African customers are concluded directly between local customers and Linde Gas Germany. It appears that these gases are procured from overseas and are shipped to South Africa by sea and/or air freight.

[18] Following its enquiries, the Commission found and submitted that each of ethylene and calibration gases are not substitutable and therefore constitutes a distinct and separate market due to their unique chemical and physical composition, their utility and application.²³

Geographic market

[19] The parties submit that the relevant geographic market for the production and distribution of calibration gases and ethylene gas is global. In support of their view, the merging parties indicated that “on a world-wide basis, the parties’ activities are complementary in terms of geography and that while both parties are major players in the global gases business, BOC has a strong focus on growth markets such as Asia, where Linde has limited or no presence.” They further submit that transportation costs are low by comparison and do not add significantly to the total purchase price. It also appears that specialty gases can profitably be shipped over long distances and their distribution normally does not require a decentralised distribution network.²⁴ In light of the above, the Commission concluded that the markets for the manufacture and distribution of ethylene and calibration gases are global.

Competition analysis

[20] As pointed out above, there appears to be a horizontal overlap between the merging parties’ respective gases businesses. However, such an overlap appears to be limited to the sale of ethylene and calibration gases. The merging parties advised us that Linde AG has had de minimis sales of these products into South Africa. They further provided us with the estimated market shares below in relation to the aforesaid affected products.

[21] With regards to the sale of calibration gases in South Africa, the merging parties market shares estimates are as follows: Air Liquide (28%); Air Products (28%); BOC (48%); and Others (including Linde AG) <1.²⁵ Since the Commission defined the geographic market with respect to calibration gases as global in nature, the Commission contended that the combined market shares of the merged entity would be significantly diluted as follows: Air Liquide (30%); Air Products (24%); PraxAir (10%); BOC (7%); Linde (6%); and Others (23%).²⁶

[22] One sees from the above market share estimates that the merging parties would become the world’s number three (3) player with post-merger market shares of approximately 13%. Air Liquide and Air Products – both being the merging parties’ competitors – will have 30% and 24% of the market shares respectively. We now turn to consider the market for the manufacture and supply of ethylene gas.

[23] With regards to the market for the manufacture and supply of ethylene in, into or from South Africa, the merging parties submitted that BOC did not derive any turnover thereof for the 2005 financial year. However, BOC pointed out that it is currently selling ethylene into South Africa and shall continue to do so post-merger. BOC considers Air Liquide as its primary competitor pertaining to ethylene sales in South Africa. Linde AG also sells ethylene in South Africa. BOC estimates Linde AG’s market shares to be less than 1%, but was unable to provide us with the market share estimates for Air Liquide. The Commission asserted that Linde AG’s market shares might be diluted further since its view is that the geographic market for ethylene gas is global. Further to this, the merging parties submitted their estimates of the market shares for the global market of ethylene gas as follows: Ballchem (45%); Chemogas (comprising Linde AG’s sales) (15%); Gerlingholz (15%); Avantec (10%); BOC <1%; and Others (15%).²⁷

[24] During its investigation, the Commission contacted and received views of the merging parties’ customers with respect to the proposed merger. None of the customers raised any concerns with respect to the proposed merger.²⁸ We now turn to consider the likely impact or otherwise of the proposed merger to the ethylene market.

[25] With regards to the ethylene gas market, the Commission’s investigation revealed that the merging parties’ market share is less than 1%. In addition, the merging parties contended that there are other suppliers in this market, such as Air Products and Air Liquide. The Commission’s investigation also revealed that it is possible to switch from one supplier to another.

[26] The merging parties contended that there are no regulatory barriers to entry into the gases business that prevent or restrict cross-border sales of specialty gases. According to the merging parties, a new entrant does not need significant investment to venture into these markets. They submitted that there have been a number of entrants recently in the specialty gases market internationally, but not in South Africa. These customers of specialty gases include multi-national companies many of whom have a multi-sourcing policy in place.²⁹ This, in our view, suggests that these customers may readily and easily switch between various suppliers of specialty gases.

Public Interest

[27] The merging parties submitted that Linde has no physical presence locally in relation to gases. However, we note that Linde has two local subsidiaries that deal with material handling and process plants. The merging parties submitted that the proposed transaction would not have an impact on the business or employment levels of either of Linde’s local subsidiaries.³⁰ They also submitted that they anticipate no job losses on any of BOC employees in South Africa or the employees of any of BOC’s subsidiaries (including Afrox) in South Africa.³¹

Conclusion

[28] In light of the reasons set out above, we are satisfied that the proposed transaction is unlikely to result in a substantial prevention or lessening of competition in the relevant markets. We accordingly approve the proposed transaction unconditionally.

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N Manoim

Presiding Member

L Reyburn and M Mokuena concurring.

Tribunal Researcher: T Masithulela

For Linde AG : K de Kock (Webber Wentzel Bowens)

For BOC Plc : M. Garden (Edward Nathan Corporate Law

Advisors)

For the Commission : T Kekana (Mergers & Acquisitions)

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