Air Liquide SA, the world's second- largest maker of industrial gases, agreed to buy GEA Group AG's biofuel-factory division for 550 million euros ($745 million) to tap burgeoning demand for cleaner sources of energy.
GEA's Lurgi unit will give Paris-based Air Liquide access to technology used to produce fuel from corn and soya beans, less-polluting liquid and chemical coals and hydrogen for making cleaner gasoline, the French company said today.
“The price doesn't look too high,'' said Christian Weiz, a Munich-based analyst at HVB Group with “hold'' recommendations on both Air Liquide and Bochum, Germany-based GEA. “Hydrogen is important and there's a lot of hype around biofuels.''
Air Liquide Chief Executive Officer Benoit Potier has raised earnings targets as environmental regulations boost orders for hydrogen used to lower the sulfur content of gasoline and diesel. GEA said last August it planned to sell Lurgi, which has annual sales of 850 million euros and 1,300 workers, because it didn't have the resources to expand the unit to meet demand.
Shares of Air Liquide closed little changed at 186.39 euros. The stock has advanced 15 percent in six months, giving a market value of 22.5 billion euros. GEA shares fell 2.9 percent to 20.42 euros. They've added 46 percent in six months, valuing the company at 3.97 billion euros.
New Technology
Lurgi will focus primarily on developing new technology for Air Liquide's own manufacturing operations as it seeks to tap new markets, spokeswoman Corinne Estrade-Bordry said by telephone. The unit has engineering centers in Germany, Poland, the U.S., India and South Africa and will double the size of the Air Liquide's existing engineering division, which operates in France, Japan, China, India and the U.S.
“Our capacity to innovate, in research and development as well as technology, is a key growth driver,'' Francois Darchi, Air Liquide's head of engineering and construction, said in the statement. The company will be better placed to design and make the large plants needed to enter new territories, he said.
GEA, the former Metallgesellschaft that sold its chemicals division and went through three corporate name changes in five years, said last month that it was close to selling Lurgi.
“The price is at best in line with the company's guidance, but by no means higher,'' said Juergen Siebrecht, an analyst at HSBC Trinkaus & Burkhardt in Dusseldorf with an “underweight'' rating on GEA. “Given Lurgi's biofuel exposure, some might have hoped for a positive surprise.''
Lentjes Sale Plan
GEA is also in final talks to find a buyer for its Lentjes factory unit, with a deal likely to be struck shortly, company spokesman Marc Poenitz said.
The disposals will leave GEA focused on gear such as cooling systems and milking machines for farms. The engineer, whose pumps help make half the world's beer, has said it may use proceeds to make purchases in hygienic packaging and food preparation.
The acquisition of Lurgi, which has recently worked with Air Liquide on projects in Saudi Arabia and Malaysia, is subject to regulatory approval, the French company said. The deal also includes cash of 350 million euros, net of pension liabilities, giving a so-called enterprise value of 200 million euros.
The purchase, which should close by the end of the second quarter, will have little impact on Air Liquide's net income this year, Chief Financial Officer John Glen said on the call.
Earnings at Lurgi have been equal to about 3 percent of sales on average in the past few years, before interest and tax, compared with an industry average of about 5 percent, Glen said.
“We fully expect to be able to get that margin up to best in class,'' the finance chief said. Savings from combined purchasing will help deliver that improvement, he said.
