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Air Liquide Will Acquire Lurgi

French industrial gasescompany wants to boost its engineering heft with German help

by Michael McCoy
April 23, 2007 | A version of this story appeared in Volume 85, Issue 17

Credit: Air Liquide
Air Liquide installs synthesis gas plants such as this one in Bernburg, Germany.
Credit: Air Liquide
Air Liquide installs synthesis gas plants such as this one in Bernburg, Germany.

SEEKING TO BOLSTER its business with large-scale customers around the globe, the French industrial gases giant Air Liquide has agreed to acquire Lurgi, the German engineering firm.

The transaction values Lurgi, which is owned by Global Engineering Alliance, at about $270 million. Lurgi has nearly 1,300 employees and had sales last year of about $1.1 billion.

François Darchis, the Air Liquide executive responsible for engineering and construction, told stock analysts on a conference call that the deal will accelerate the growth of his company's large-industries business. Accounting for about 30% of Air Liquide's industrial gas sales, the business provides chemical companies, oil refiners, and other capital-intensive firms with gases and related services.

Darchis said Lurgi will complement Air Liquide's own engineering and construction operation of 1,500 employees who support the large-industries business. The combined operation will run engineering and construction centers in most major markets around the world, he added.

Air Liquide executives are particularly bullish on Lurgi's ability to engineer coal-to-chemicals and coal-to-liquids plants, an emerging class of facilities that consume a lot of hydrogen and oxygen. Lurgi is also a big provider of biofuels technology.

Stock analysts participating in the conference call questioned Air Liquide on the wisdom of acquiring a business that is known for its poor profitability. Finance Vice President John Glen acknowledged that Lurgi's ratio of earnings before interest and taxes to sales averages only 3%, versus 5% for engineering sector leaders. But he predicted that the figure will rise as managers capture synergies between the two engineering organizations.

Analysts also asked whether Air Liquide runs the risk of creating a big engineering organization with goals that differ from those of the business it serves. Darchis responded that the engineering unit's mandate is to support the large-industries business as it expands investment to 1 billion euros a year. "We want to double investment on the large-industry side, and for this, it was necessary to double engineering," he said.



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