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Praxair Wins CBI, and Suddenly Its Future Looks Bubbly

December 26, 1995

Hours after he learned that his company finally had won a two-month battle to buy CBI Industries Inc. for $1.5 billion, Praxair Inc. Chairman H. William Lichtenberger toasted the takeover agreement with wine. He might well have used a carbonated beverage instead.

That’s because the CBI board’s acceptance Friday of Praxair’s $33-a-share offer _ while handing CBI Chairman John Jones a golden parachute worth nearly $10 million _ transforms Danbury, Conn.-based Praxair from a bit player in carbon-dioxide production into the world leader. Used most commonly to put the fizz in soft drinks, carbon dioxide should give Praxair an entree to markets across Asia and Latin America where it has long set its sights.

CBI already has a presence in every nation in South America; Praxair operates only in Brazil and four other countries on the continent. ``In one fell swoop, we get our whole geographic expansion,″ Mr. Lichtenberger says.

At the same time, as Coca-Cola Co., PepsiCo Inc. and other soda companies continue moving aggressively into other emerging markets, manufacturing carbon dioxide will allow Praxair to ``ride on their wave,″ Mr. Lichtenberger says.

Once it has gained a foothold in these developing countries, he explains, fast-growing Praxair can peddle the other industrial gases it produces. They include oxygen, often used by factories to make their furnaces burn hotter and cleaner; nitrogen, used for everything from freezing hamburgers to decreasing the volatility in chemical storage tanks; and argon, used in welding and steel production.

The other parts of CBI _ a construction contracting business and an oil-terminal business _ will be offered for sale. By selling these subsidiaries, which account for roughly half of CBI’s $2 billion in annual revenue, Mr. Lichtenberger says Praxair will focus on industrial gases.

The timing of any asset sales may prove tricky, however. Tim Gerdeman, a specialty-chemical analyst with Everen Securities, says that because many on Wall Street view the contracting business in particular as ``a real dog,″ there will be pressure to shed it quickly. But he believes it might be wiser to let the backlog continue to build for some time.

Unloading the two units, however, would lighten Praxair’s debt load, Mr. Lichtenberger notes. Including the assumption of about $700 million in CBI debt, the total purchase price of the Oak Brook, Ill., company stands at about $2.2 billion. That will swell Praxair’s debt load to about $3.6 billion _ a level Mr. Lichtenberger says he is ``not terribly″ comfortable with. Getting rid of everything but the carbon-dioxide-producing Liquid Carbonic unit, over the next 12 to 18 months promises to reduce that substantially.

Other synergies are possible. For example, CBI has a prominent position in the hydrogen market in Mississippi and Louisiana, while Praxair is strong on the nearby Gulf Coast, Mr. Lichtenberger says. Praxair plans to link its Houston plant with CBI’s facility in Lake Charles, La., with a pipeline.

As perfect a fit as CBI seems to be for Praxair, the pact didn’t come easily. After Praxair offered $32 a share for CBI in late October _ a 60 percent premium over its stock price at the time _ CBI’s board rejected the bid as inadequate. Led by Mr. Jones, CBI hunkered down, apparently determined to find another bidder.

None emerged. And as the weeks passed, the pressure on CBI to succumb to Praxair mounted. First, the trustee managing the company’s employee stock-ownership plan sold CBI shares. So did the family trusts of a longtime CBI director, undermining the company’s assertion that Praxair’s bid wasn’t sweet enough. Then last week Praxair raised its bid by $1 a share, forcing CBI’s hand.

``No CEO likes to have anything like this happen,″ Mr. Lichtenberger says. ``But I think John Jones can hold his head pretty high. He has done pretty well for his shareholders in this regard.″

As for Mr. Jones himself, he will receive $9.6 million, according to filings with the Securities and Exchange Commission, when Praxair formally takes control of CBI, a step Mr. Lichtenberger expects to occur by mid-January. All told, the filings indicate, five top CBI executives stand to walk away with $21.6 million _ nearly half as much as the $45.5 million the company earned last year. Spokesmen for CBI didn’t return calls seeking comment.

Shares of CBI now trade at around $32.875, while shares of Praxair trade at around $31.875, both on the New York Stock Exchange.

For Praxair, some hurdles lie ahead. It faces competition in the carbon-dioxide market from British Oxygen Co. and France’s Air Liquide SA, which remain the two biggest industrial-gas producers in the world. Even after Praxair completes the CBI purchase, it will remain No. 3 in the industry in terms of size.


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