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Praxair-Linde Merger Approved by Russian Body, Wins Contract

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Industrial gas producer and supplier, Praxair Inc 's PX proposed merger with Linde AG yesterday received a green signal from the Russian antitrust authority. As revealed by Linde plc - the company that will house the businesses of Linde AG and Praxair upon completion of the deal - the approval received was unconditional.

In a separate release on Oct 12, Praxair announced the signing of a long-term contract to supply industrial gases to Shanghai Huali Microelectronics Corporation, a unit of Shanghai-based Huahong Group. Financial terms of the deal have been kept under wraps.

We believe that market sentiments are positive for Praxair, as evident from 19.4% rally in its share price over the last six months. The stock has outperformed 16.4% gain recorded by the industry it belongs to over the same period.

Praxair-Linde Merger Deal

Praxair signed a business combination agreement with Linde AG in June 2017. The proposed all-stock transaction will combine Praxair's efficient operating model and Linde's expertise in engineering and technology, creating a leading industrial gas company with a strong international presence, large customer base and solid financial flexibility.

As agreed upon then, Praxair's shareholders will be offered one share in the new company for each existing share while Linde's shareholders can exchange each share with 1.54 shares in the new company. Praxair and Linde will each have 50% ownership in the new company.

Based on 2016 results, the new holding company's combined proforma revenues were approximately $29 billion while market capitalization was roughly $70 billion as of May 31. Incorporated in Ireland, the company will have 12-member board of directors and will be listed on both the NYSE and the Frankfurt Stock Exchange (Prime Standard segment).

The merged company is anticipated to benefit shareholders with realization of annual synergistic benefits of approximately $1.2 billion and cost reduction in a period of three years from closing of the transaction.

Subject to pending closing conditions, the parties involved anticipate closing the transaction in the second half of 2018.

Details of the Supply Contract

Per the deal agreed upon, Praxair will supply nitrogen, high purity oxygen, helium and other gases to Shanghai Huali Microelectronics' production base in Kangqiao Industrial Park. The company will build and operate two new air separation plants, with combined daily production capacity of 600 tons of nitrogen. Praxair anticipates the plant to start production in early 2018.

Praxair's association with Shanghai Huali Microelectronics can be dated back to 2010, when the former started supplying industrial gases to the latter under a long-term bulk supply contract.

We believe such contracts reflect customers' preference for Praxair's products and will prove beneficial for its growth, going forward. Notably, the Shanghai Huali Microelectronics contract will strengthen the company's foothold in China, particularly increasing its presence in the semiconductor end market.

Zacks Rank & Stocks to Consider

With a market capitalization of $40.4 billion, Praxair currently carries a Zacks Rank #3 (Hold). Over the last 60 days, the Zacks Consensus Estimate for the stock remained stable at $5.73 for 2017 and $6.23 for 2018.

Praxair, Inc. Price and Consensus

Praxair, Inc. Price and Consensus | Praxair, Inc. Quote

Praxair is slated to release its third-quarter 2017 results on Oct 26, before the market opens. Earnings estimate for the quarter is at $1.45.

Some better-ranked stocks in the industry are FMC Corporation FMC , The Chemours Company CC and Air Products and Chemicals, Inc. APD . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

FMC Corporation's earnings estimates for 2018 improved in the last 60 days. Also, the company reported better-than-expected results in the last quarter, with a positive earnings surprise of 2.13%.

Chemours Company' earnings estimates for 2018 improved in the last 60 days. Also, it pulled off an average positive earnings surprise of 12.07% for the last four quarters.

Air Products and Chemicals' earnings estimates for fiscal 2018 were revised upward in the last 60 days. It delivered an average positive earnings surprise of 1.77% for the last four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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