Linde, Praxair Merger: Inversion Tax Rules Jeopardize Deal

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By Allyson Versprille

The planned merger between German company Linde AG and the U.S.'s Praxair Inc. faces termination if Linde shareholders don’t ramp up their participation, increasing the chances of triggering U.S. anti-inversion regulations.

The deal to create the world’s largest gas supplier won’t succeed as currently structured if there isn't “enough participation by the Linde shareholders,” said Robert Willens, president of tax and consulting firm Robert Willens LLC in New York.

Linde announced Oct. 23 that it had lowered the number of shares its investors must tender for the deal to go through to 60 percent, from 75 percent. It also extended the deadline to reach that threshold to Nov. 7. But its primary aim is to eventually reach at least 74 percent, Bankhaus Lampe KG said in an Oct. 24 note.

If that 74 percent threshold isn’t met, the deal could face adverse tax consequences under U.S. anti-inversion rules that would allow either Linde or Praxair to terminate certain covenants, which would likely kill the merger, according to an SEC filing dated Aug. 10.

Third-Country Transaction

The planned merger uses what is known as a “third-country transaction.” Through the transaction, which was announced in June, Praxair and Linde will come together under a new Irish holding company called Linde Plc.

At less than 74 percent participation on the Linde side and full participation on the Praxair side, Praxair shareholders would be treated as receiving 60 percent or more of the stock of the new holding company under the ownership rules in the anti-inversion regulations, Willens said.

Crossing that 60 percent threshold means Linde Plc would be treated as a U.S. company for tax purposes, he said.

“This would be an adverse tax event to say the least,” giving either of the two companies the ability to exercise their termination rights, Willens said.

Saving the Merger

If the 74 percent threshold isn’t met by Nov. 7, there are options the companies can consider to salvage the multibillion-dollar tie-up.

If the number of validly tendered Linde shares reaches at least 60 percent by the November deadline, the company can get a second extension to buy more time to reach their ultimate goal, said Bloomberg Intelligence senior analyst Jason Miner.

If the 74 percent mark still isn’t met after a second extension, Linde and Praxair may need to renegotiate the terms of the merger to keep the transaction alive, he said.

Willens said this may require that the Linde shareholders are offered more shares of Linde Plc “in order to get them to play.” However, that wouldn’t be an easy adjustment. “That would be a change in the fundamental terms of the deal and would require new votes and a new proxy circulation,” he said.

With assistance from William Canny (Bloomberg) in London

To contact the reporter on this story: Allyson Versprille in Washington at (Bloomberg BNA)

To contact the editors responsible for this story: Meg Shreve at (Bloomberg BNA); Celeste Perri at (Bloomberg)

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