Shares in Boc Soar As German Rival Forced to Consider Raising £7.6bn Bid

Linde, the German industrial gases firm, was last night considering an improved offer for BOC after its British rival rejected a takeover approach pitched at £15 a share, valuing the FTSE 100 business at £7.6bn.

The Wiesbaden-based Linde, which also makes forklift trucks and sold its original refrigeration business two years ago, said only that it would "express itself at an appropriate time". Industry sources in Germany said a merger with BOC would be "a sound strategic fit" for both groups, while France’s Air Liquide, the market leader, and German chemicals group BASF both ruled themselves out of the immediate equation, dashing hopes of a bidding war. Nevertheless, shares in BOC closed 243p higher at £13.94p - a gain of 21%.

BOC said it had turned down the approach because it failed to fully value BOC’s prospects and because of a series of preconditions, including financing, due diligence and competition clearances.

The toughly worded statement from the British firm added that the directors "state their continuing confidence in the current strategy to deliver growth and excellent returns for shareholders as an independent company".

The company will hold its annual meeting in London on Friday, when directors are likely to be closely quizzed about the Linde approach. Analysts were divided yesterday over whether Linde would be able to increase the amount it was prepared to pay for BOC and whether it would be prepared to mount a hostile approach.

ING analyst Paul Satchell pointed out that BOC had said on a number of occasion it saw no point in a merger. "I’d be very surprised if Linde could afford a hostile bid," he said. However, WestLB analyst Stephan Kippe said he believed a deal would make sense if Linde sold its forklift truck business to help finance an offer.

Jeremy Batstone, at stockbroker Charles Stanley, said he was cautious about the success of a hostile bid for BOC from Linde or another European rival. "BOC has evaded predatory clutches before and its dominant position in key markets implies that regulatory scrutiny of any approach would be inevitable."

In 1999 Air Liquide and the US company Air Products made a joint £14.60-a-share agreed bid for BOC, but although the deal cleared the European competition authorities it lapsed the following year having failed to gain "satisfactory clearance" in the US.

Last night Linde played down the prospect of a hostile offer. "It’s a friendly approach. We will continue to look for the support of the BOC board and management," said a spokesman. He said the company was "well advanced" in arranging the finance for any offer and its banks were confident that such finance could be arranged "very rapidly". It is understood that any bid would be in cash.

Linde, headed by Wolfgang Reitzle, the former BMW and Ford senior executive, saw its own shares fall as much as 5% on fears it would step up its bid. The group’s shares have soared in recent months to more than €67 on Mr Reitzle’s promise of "sustained profitable growth".

In the first nine months of last year the group, which has been expanding in the US but has little presence in Asia - a key market for BOC - increased its sales 8% to €6.8bn (£4.7bn) and its operating earnings by 17.5% to €590m. Employing 41,000, it made profits of €785m in 2004 on sales of €9.4bn.

BOC, which employs more than 30,000 people, has some two million customers in 50 different countries. It controls 13% of the global gases market compared with Linde’s 9%. If Linde were to acquire BOC it would overtake Air Liquide to become number one in the global gases industry. Industry sources suggested there was little geographical or product overlap between the two companies, possibly making regulatory clearance easier.

Sources at Air Liquide indicated that while the French group was following Linde’s moves "attentively," it was not actively involved and still busy digesting the €2bn takeover of Germany’s Messer, 18 months ago.

BASF’s chief executive, Jürgen Hambrecht, ruled out any interest in BOC late last year and the cash-rich German group insisted it was still pursuing US speciality chemicals company Engelhard. Mr Hambrecht said the group was also bidding to acquire parts of the smaller German chemicals firm Degussa.

British targets

Recent German takeover bids in UK:

December 2004 Deutsche Börse makes £1.3bn approach for London Stock Exchange: rejected by board.

September 2005 Utilities group E.ON makes £10.7bn approach to ScottishPower: rejected by board. E.ON buys British North Sea producer Caledonia for £490m.

September 2005 Deutsche Post offers £3.7bn for logistics group Exel. Backed by Exel directors.

January 2006 Linde makes £7.5bn approach to BOC. Rejected by BOC board.