SM ppt

The Merger with BOC

Strategic Marketing

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Fabrication

Construction

Household/

Leisure

Electronics

Lighting

Lasers

Labs

Propellants

Refrigeration

Electronics

Chemicals

Refineries

Heat Treating

Glass

Healthcare

Diving

Labs

Food

Carbonation

Water Treatment

Fumigation

Oil recovery

Steel/Metals

Chemicals

Health Care

Pulp & Paper

Electronics

Food

Water

treatment

Glass

Fuel

Gases

Speciality

Gases

Hydrogen

& Syngas

HeliumCarbon

Dioxide

Atmospheric

Gases

Oxygen

Nitrogen

Argon

Journey of the Linde Group

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Linde and BOC

On 21 June 1879, Professor Doctor Carl von Linde founded the Gesellschaft für Linde’s Eismaschinen Aktiengesellschaft to develop further his work in developing mechanical refrigeration systems for the brewing and food industries. Following success in this market, he moved on to developing lower temperature systems resulting in 1895 in a patent covering the liquefaction of air. Out of this work his company developed equipment for the separation of air and other gases. One of the first large-scale air separation plants was installed in Höllriegelskreuth, near Munich in 1903.

Brin's Oxygen Company, Ltd. was formed in 1886 by Arthur and Leon Brin. In the early days they manufactured oxygen using a high temperature barium oxide process developed from work by French scientist Jean Baptiste Boussingault.

Its Indian arm was set up in 1935 headquartered in Calcutta. It was known as Indian Oxygen and Acetylene company.

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Strategic tie ups- BOC and Linde

1906: Linde and Brin's Oxygen Co. agree to use Linde's patents. Linde becomes shareholder in Brin's. Carl von Linde joins the board, Brin's changes name to The British Oxygen Company Ltd.

1954: Foundation of Linde-BOC joint venture BOL Ltd. coordinating the technical design and sales of air separation plants

1969: Foundation of Linde-BOC joint venture in refrigeration solutions

2000: Construction of world's largest nitrogen plant to pump heavy crude oil under high pressure in the Cantarell Oil fields, Mexico - an innovative joint project involving Linde, BOC and partners.

2002: Foundation of US engineering joint venture Linde-BOC-Process Plants LLC, Tulsa, Ohio.

2006: Linde and BOC join forces to become the Linde group.

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The Merger

The Linde Group underwent a significant transformation in September 2006, following the acquisition of The BOC Group. The merger and subsequent disposal of non-gas interests recast the group as the world's largest pure-play industrial gases supplier.

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Supply Chain

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Reasons for the takeover

I. The five industrial gases companies have a worldwide market share of around 70 percent, Zayed estimated, with Air Liquide's share at some 21 percent, Praxair's at 15 percent, BOC's at 13 percent, Air Products at 12 and Linde's at 11 percent. (Reuters).

II. Linde had presence in the western markets and BOC had a firm foothold in the South East Asian and China markets (the main growth drivers).

III. Linde wanted to consolidate in the industrial gas market due to its growth potential in the near future. In a mature market inorganic growth seemed to be the best option.

IV. Familiarity with each other also contributed. Linde and BOC had a 100 year long partnership in various joint ventures.

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How does the acquisition of BOC add value to Linde’s shareholders?

The acquisition offers significant value potential for Linde’s shareholders from a transition into a pure play industrial gases company, with the potential for cost and revenue synergies and an enhanced growth and profitability profile based on the strong complementary nature of both groups.

Through this transaction, Linde will be ideally positioned in key growth markets and segments. Across geographies such as Eastern Europe and Asia Pacific and products like Healthcare and Electronic Gases this transaction will create a leader in four out of seven growth segments with compounded annual growth rates of between 4 and 15 percent.

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How does the BOC transaction fit into Linde’s strategy?

The industrial gases market has demonstrated stable growth rates of 2 to 2.5 times GDP and is expected to grow again by 7% over the next four years. This growth will be driven by product enhancements and new applications to further improve productivity. Looking at the largest pure-play companies in this sector, they delivered strong EBITDA margins and average EPS growth of 8% over the last 10 years. The industry is also marked by long-term contracts and diverse customer segments, making it an attractive, stable business with predictable cash flows. The combination of Linde and BOC will create a leader in this sector and the scale and scope will allow us to take full advantage of the growth opportunities in the market.

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What level of synergies is Linde anticipating from the acquisition? Where will these primarily come from?

The anticipated annual pre-tax cost synergies are approximately €250 million p.a., fully realised during 2009. They will come equally from more efficient supply management and production optimization, procurement as well as R&D, and reduction in general and administrative costs.

In addition to the cost synergies there is significant upside potential from revenue synergies. Cross-selling of products and services, joint application of innovation and knowledge sharing, the ability to serve global customers on a global basis and providing engineering and industrial gases from one source will allow Linde to unlock significant opportunities for revenue development.

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Expectation

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Take aways

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The transition

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Y-O-Y Sales by Division(in Mn Euros)

6279 6285

9515 8932

1541 2108

30162311

0

2000

4000

6000

8000

10000

12000

14000

2006 2007 2008 2009Gases Engineering

51%

-6%0.01%0

Y-O-Y Operating Profits by Division(in Mn Euros)

16

1524 1707

2417 2378

219247

267 210

0

500

1000

1500

2000

2500

3000

2006 2007 2008 2009

Gases Engineering

41.5%1.6%1.2%

1.2

YOY sales from different categories of gases(in million Euros)

Competitor’s Commercial Strategy

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Praxair•Acquire market share by lowering prices•This has significantly impacted medical prices in East & West – Praxair marketed medical gases like a commodity•Regional structure and focus on key customers rather than focusing in lines of business

InOx / Air Products•Primary focus on bulk liquid business; limited presence in compressed business•Regional focus - large number of small liquid plants to cater for regional demand ; Strong merchant presence in - South and West - the two fastest growing regions•Of late has shown great interest in pursuing large tonnage opportunities - contract at Ispat, also pursuing SAIL vigorously

Air Liquide•Primary focus on North market at the moment with limited interest in Western India - largely Gujarat•Investment strategy for India as yet uncertain - more focused on plant saleHave plant building capability and successfully won a number of plant supply contracts recently

Conclusion on the basis of PORTER’S FIVE FORCES MODEL

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1. A larger number of suppliers - increase rivalry because more firms must compete for the same customers and

resources.2. Slow market growth -In a growing market, firms are able to improve revenues because of the expanding

market 3. High storage costs or perishable products -This cause a producer to sell goods as soon as possible. If other producers are

attempting to unload at the same time, competition for customers intensifies.4. Low switching costs -Customers can freely switch from 1 product to another; there is a struggle to

capture customers5. Low levels of product differentiation -Brand identification tends to constrain rivalry but CO being a commodity product

with low product differentiation has led to the mushrooming of many small players in the sector.

6. Threat from substitutes -Acetylene is slowly getting replaced by LPG for heavy cutting purposes. CO2 which

is still used in many parts for its use as shielding gas in TIG and MIG welding which is a cheaper option compared to Argo shield gases. Low purity oxygen has high penetration due to its low price.

7. Buyers -are fragmented and many in number. Switching costs are low and products are

standardized.8. Entry barriers -are few as the industry is fairly easy to enter as non-cryogenic methods of

production are common among small players to cater to the customers at cheaper rates.

Thank you for your attention