Linde and Praxair announce $65bn merger

BY Richard Summerfield

Multinational chemical company Linde AG and US rival Praxair, Inc have announced a $65bn merger of equals via an all-stock transaction. Under the terms of the merger, existing Linde and Praxair shareholders would each own about 50 percent of the newly combined company, according to a joint statement announcing the deal.

Merger talks between the two companies had collapsed earlier this year; however they were revived following the dismissal of Linde’s finance director Georg Denoke. The merger, like many of the industry consolidation deals announce in 2016, is expected to encounter some tough regulatory scrutiny.

The two companies have pursued a merger in order to create a new industry leader from two regional giants. Linde’s business focuses primarily on Europe and Asia, while Praxair is more dominant in the US and Latin America. Linde is currently the industry’s second biggest specialty gas provider; Praxair is the third biggest. According to data from the companies, a combined Linde-Praxair combination would generate around $30bn in annual sales before divestitures.

The companies have also identified considerable cost savings as being a key driver behind the deal, targeting annual cost savings of around $1bn.

"The strategic combination between Linde and Praxair would leverage the complementary strengths of each across a larger global footprint and create a more resilient portfolio with increased exposure to long-term macro growth trends," said Steve Angel, Praxair’s chairman and chief executive. "We consider this to be a true strategic merger, as it brings together the capabilities, talented people and best-in-class processes of both companies, creating a unique and compelling opportunity for all of our stakeholders."

"Under the Linde brand, we want to combine our companies’ business and technology capabilities and form a global industrial gas leader. Beyond the strategic fit, the compelling, value-creating combination would achieve a robust balance sheet and cash flow and generate financial flexibility to invest in our future," said Professor Dr. Aldo Belloni, chief executive of Linde.

Mr Angel will become chief executive of the new company. Linde’s chairman Wolfgang Reitzle will continue in that role. The new board will have equal representation from both companies.

News: Linde, Praxair agree $65 billion merger outline, ambitious cost savings

Cyber attack aftermath a big issue for global organisations

BY Fraser Tennant

Global organisations are more adept than ever at detecting a cyber attack but are struggling to cope with the aftermath of a breach, according to a new survey by EY.

In ‘Path to cyber resilience: Sense, resist, react’, EY’s 19th Global Information Security Survey (GISS) 2016-17, some of the most compelling cyber security issues facing businesses in today’s digital ecosystem are examined, with respondents indicating that cyber security threats, such as malware, phishing, cyber security to steal financial information, or cyber attacks to steal intellectual property or data, are on the rise.

EY’s findings show that although 50 percent of the 1735 global organisations surveyed said they could detect a sophisticated cyber attack – due to investments in cyber threat intelligence to predict what they can expect from an attack, continuous monitoring mechanisms, security operations centres (SOC) and active defence mechanisms – 86 percent said that, despite these investments, their cyber security function does not fully meet their organisation's needs.

Additionally, 64 percent of organisations stated that they did not have a formal threat intelligence programme or had only an informal one at best. When it came to the matter of identifying vulnerabilities, 55 percent of respondents said they did not have vulnerability identification capabilities or had only informal capabilities. Moreover, 44 percent indicated they did not have a SOC to continuously monitor for cyber attacks.

"Organisations have come a long way in preparing for a cyber breach, but as fast as they improve, cyber attackers come up with new tricks,” said Paul van Kessel, EY global advisory cyber security leader. “Organisations therefore need to sharpen their senses and upgrade their resistance to attacks. They also need to think beyond just protection and security to 'cyber resilience' – an organisation-wide response that helps them prepare for and fully address these inevitable cyber security incidents.

When asked about any recent cyber security incidents, 57 percent of respondents said they had experienced an incident. Furthermore, 48 percent cited outdated information security controls or architecture as their highest vulnerability – a 34 percent increase on the findings of the 2015 survey.

Mr van Kessel continued: “In the event of an attack organisations need to have a plan and be prepared to repair the damage quickly. If not, they put their customers, employees, vendors and ultimately their own future, at risk."

Report: ‘Path to cyber resilience: Sense, resist, react’.

2017: the year of business risk and uncertainty

BY Fraser Tennant

2017 will be a year of heightened risk and uncertainty for businesses, largely driven by the results of the US election and the UK EU referendum (Brexit) and their impact on globalisation and free trade, according to a RiskMap forecast published this week by Control Risks.

The RiskMap – an annual study highlighting the most significant underlying trends in global risk and security – also notes the risks posed by political, cyber and terrorism threats, as well as president-elect Donald Trump’s tough stance regarding the global regulatory environment.

As a result of the uptick in the range of threats, Control Risks reveals that many businesses now see little distinction between perceived safe domestic markets and foreign ones rife with challenges.

In summary, the RiskMap identifies the key risks for businesses in 2017 as being: (i) political populism exemplified by president-elect Trump and Brexit; (ii) persistent terrorist threats; (iii) increasing complexity of cyber security; (iv) intensifying geopolitical pressures driven by nationalism, global power vacuums and proxy conflicts; and (v) the militarisation of strategic confrontations by accident or miscalculation.

“The unexpected US election and Brexit referendum results that caught the world by surprise have tipped the balance to make 2017 one of the most difficult years for business’ strategic decision making since the end of the Cold War,” said Richard Fenning, chief executive of Control Risks.

“The catalysts to international business – geopolitical stability, trade and investment liberalisation and democratisation – are facing erosion. The commercial landscape among government, private sector and non-state actors is getting more complex,” he added. 

In response to the high levels of complexity and uncertainty forecast for 2017, Control Risks suggests that company boards should undertake a comprehensive review of their approach to risk management. The strategies they deploy to “protect value and seize opportunity in 2017”, will, according to the report, determine whether organisations are defined as Arks (having a defensive focus on core markets), Sharks (seeking to target new opportunities) or Whales (becoming too big to fail).

Mr Fenning continued: “With the seismic shift in risk scenario planning now required by businesses, we can expect the competitive playing field in many industries to see significant change as organisations respond in different ways to the multitude of complexities facing them. By the end of 2017 we will know whether or not the global economy withstood the shocks and turbulence of 2016, if the US opted for a new definition of how to exercise its power and if the great experiment in globalisation remains on track.”

Report: RiskMap 2017

Unicredit unit sold to Amundi

BY Richard Summerfield

Italy’s biggest bank, UniCredit SpA, has announced that it is to sell asset manager Pioneer to French fund management firm Amundi in a deal worth $3.75bn.

According to the terms of the deal, Amundi will finance the acquisition through a combination of a €1.4bn capital increase, around €600m of senior subordinated debt and about €1.5bn in existing capital. UniCredit will also receive an extraordinary dividend of €315m from Pioneer before the deal is completed. The dividend will take the total value of the transaction to around $4.10bn. The deal is expected to close in the first half of 2017.

"Thanks to a long term distribution agreement, UniCredit's customers will have access to an extended range of quality products and services whilst the Group will reap the benefit of additional fee income from expected increased sales," UniCredit chief executive Jean Pierre Mustier said in a statement. "The transaction means Italy becomes Amundi's second largest domestic market and Amundi will turn Milan into one of its core investment hubs, creating new jobs and ensuring close proximity to UniCredit, our teams and clients."

The sale of the Amundi unit is the latest in a series of moves by UniCredit to divest some of its holdings, and to shore up its balance sheet.  In July, the company agreed to sell its 32.8 percent stake in Pekao bank in Poland to state-owned insurance group PZU for around $2.6bn. UniCredit also sold a 30 percent stake in FinecoBank SpA in October for around £2bn.

UniCredit, under the leadership of the new chief executive Jean Pierre Mustier, is expected to launch a new share sale this week, with the hope of raising around €13bn. UniCredit’s recent financial difficulties are allegorical of the wider Italian banking sector, which has been experiencing considerable difficulty for some time.

Through the acquisition of Pioneer, which manages around £186bn worth of assets, Amundi expects to generate around €150m in full-year cost synergies within three years as it merges investment platforms and streamlines support functions. The company also expects the acquisition to boost its revenue by €30m.

News: France's Amundi to buy Pioneer from UniCredit for 3.6 billion euros

Digital disruption driving deals

BY Richard Summerfield

2017 is likely to see increased mergers and acquisitions (M&A) activity in the media and entertainment (M&E) sector, according to EY’s latest Media & Entertainment Capital Confidence Barometer, released earlier this week.

Much of the dealmaking activity in the M&E space in the coming year will be likely be driven, in part, by digital disruption and convergence. The emergence of digital disruption and sector blurring in particular has proved a key driver of recent dealmaking in the M&E space, with 31 percent of the executives surveyed by EY citing convergence as the biggest disrupter in the industry of late. Increasingly, companies are expanding into previously uncharted territory. Sixty-seven percent saw digital disruption as the main catalyst for deal aking in the coming year.

In a statement announcing the report, John Harrison, EY's Global Media & Entertainment Leader, Transaction Advisory Services, said, “Unprecedented, unrelenting advances in technology and the swift emergence of new platforms and services are driving change in consumer behaviours, upending long-standing media ecosystems and blurring sector lines. Companies are aggressively seeking the innovation needed to position for future success and are looking to acquisitions, alliances and joint ventures to catalyse transformation.”

Despite the political and economic uncertainty permeating the globe, there is an underlying confidence in the M&E industry, particularly when it comes to dealmaking. In spite of persistent macroeconomic challenges, 73 percent of respondents perceived the global economy as stable or improving.

From a dealmaking perspective, 85 percent of respondents expressed confidence in the quality of acquisition opportunities available to M&E companies in the year to come. Furthermore, 94 percent of respondents claimed they had stable to positive confidence in the likelihood of closing a deal in 2017. More than half of respondents (56 percent) claimed that they expect their company to actively pursue an acquisition in the next 12 months, up from 46 percent in July 2016. Forty-eight percent said they have five or more deals in the pipeline.

Cross-border dealmaking is likely to be particularly prevalent in 2017, with 42 percent of executives claiming that their companies will be targeting a cross-border acquisition in the coming year. The US, France, the UK, Germany and China are the top five most likely destinations. The UK was the most sought after investment destination in EY’s previous report.

Report: Media & Entertainment Capital Confidence Barometer