L’Air Liquide SA
L’Air Liquide SA
Sales: EUR 8.3 billion ($6.64 billion) (2001)
Stock Exchanges: Euronext Paris; OTC
Ticker Symbol: AI; AIQUY
NAIC: 325120 Industrial Gas Manufacturing
L’Air Liquide SA (Air Liquide) is the world’s leading producer of industrial gases, with operations in 60 countries that together produced more than EUR 8.3 billion in sales in 2001. Industrial and medical gases and accompanying services represent more than 80 percent of Air Liquide’s sales. The company’s home base, France, accounts for 23 percent of its sales. The Americas produce 33 percent of sales, while the rest of Europe adds 27 percent. The Asia/Pacific region, where the company is also present through subsidiary Société d’Oxygène et d’Acetylène d’Extrême-Orient, represented 15 percent of the company’s sales. The company’s products find multiple applications in a diversity of products. The areas of chemistry, industry, agriculture, pharmacy, electricity, biology, papermaking, glassmaking, and medicine all use industrial gases. Since the late 1990s, Air Liquide has also stepped up its activities in “wet” chemicals products, such as hydrogen peroxide, ammonium hydroxide, and acids used in semiconductor production and in other industries. Founded in 1902, Air Liquide attempted to seal its world leadership with the acquisition of Britain’s British Oxygen Corporation; the deal fell through in 2000, however, after failing to win FTC approval. Shortly after, Air Liquide fought off an attempted takeover by Suez Lyonnaise des Eaux in 2001. Instead, Air Liquide had continued growth through smaller-scale acquisitions and internal growth initiatives, such as the opening of small site production facilities designed to provide products for specific customers.
Chemicals Industry Pioneer at the Turn of the 20th Century
Georges Claude received his diploma in chemistry from the School of Physics and Chemistry in 1889. From 1896 to 1902 he worked as a chemist at Compagnie Française Houston-Thompson. While employed there he attempted to develop a process for handling acetylene. The chemical, discovered only a few years earlier, posed several difficulties for industrial use; in particular the expense of production and storage made it economically unfeasible for wide-scale use. At the age of 26, Claude solved these problems and discovered a method for liquefying acetylene. Professor Land, a German chemist, had succeeded earlier in separating oxygen and nitrogen. However, the gases converted by Land’s “counter-current procedure” contained 40 percent impurities. The triumph of Claude’s process, acclaimed by the Academy of Science and Chemistry, returned gases with less than 1 percent impurities.
Claude’s research led him to believe that air gases, produced and stored economically, could serve as viable and inexpensive sources of energy. He envisioned oxygen and nitrogen as sources of power for combustion engines. Claude’s process for separating air gases resulted in the emission of large quantities of heat. However, many of his early experiments failed. They were expensive to undertake and the young chemist had no financial resources of his own to rely upon. Good ideas, Claude realized, needed financing if they were to become anything more than ideas.
Paul Delorme, a former schoolmate and coworker at Houston-Thompson, encouraged his friend Frédéric Gallier to match his own financial contribution to Claude’s research. In November 1902 Delorme and Gallier each contributed FFr 50,000 to the fledgling enterprise; the company was formally constituted, and Paul Delorme was named president, a position which he held until 1945. The bulk of the company’s original 26 shares were entrusted to Claude.
During the early years the company suffered from financial hardships, but the business skills of Paul Delorme carried L’ Air Liquide through these difficult times. In 1903 Delorme issued 725 new shares and offered 100 of these shares for sale. By the third quarter of 1906, L’Air Liquide had overcome its financial problems, and during that year the company earned its first dividends. Since that time L’Air Liquide continued to prosper.
International Growth Before World War II
Under the direction of Delorme, L’Air Liquide established plants in Belgium and Brazil in 1906, and continued to expand into overseas markets; plants were set up in Spain (1910), Japan (1911), and Canada and Sweden (1913). One of the earlier inventions of Claude, neon lighting, appeared on the streets of Paris in 1910. (He had applied for the first patent on neon tubes in 1907.) In 1908 L’Air Liquide began producing oxygen and later became one of the largest producers in Europe. Immediately prior to and during World War I, Claude designed machinery to improve the production of ammonia. His work with liquid oxygen at this time led to technological innovations in explosives.
The interwar years were ones of continued overseas expansion for L’Air Liquide. Plants were established in Greece, Singapore, Hong Kong, Malaysia, Portugal, and Senegal. In this period Claude concentrated his efforts on the separation and utilization of rare atmospheric gases. His engineering skills overcame the practical difficulties and Claude was able to improve on his process for separating hydrogen. Through several stages of cooling, using liquid carbon monoxide as the coolant, hydrogen was compressed. His success with hydrogen produced a lubricant which could be used for driving motors. Employing nitrogen, the gas was injected into the motor and provided an efficient lubricant down to -211 degrees Fahrenheit. No other lubricant product had proved to be so efficient at this temperature.
Claude regarded the oceans as the most abundant yet untapped source of energy on the globe, and during the 1930s he began experimenting with thermodynamic principles to take advantage of this energy source. His efforts in this area did not have any immediate practical results, but following World War II the Academy of Sciences used his principles of thermodynamics and started to build a thermodynamic plant off the coast of Cuba. An accident caused the project to be cancelled, but L’Air Liquide continued to develop oceanic products, including the manufacturing of special equipment for deep-sea diving.
Following World War II the French High Court accused Claude of collaborating with the Nazis. Unconfirmed charges claimed that the development of the “flying bomb” resulted from Claude’s work. In his defense, Claude stated that he believed in German victory under the auspices of Pétain in Vichy France. The Court, however, sentenced him to life imprisonment and stripped him of all honors. He was released from prison in 1950.
During the 1960s gas sales declined, and most of the major industrial gases manufacturers began to diversify their companies. But Jean Delorme, Paul Delorme’s son, believed the potential market for gases remained strong, and under his leadership L’Air Liquide did not follow the movement to diversification. This decision improved the company’s leading position in the industrial gases market. At the same time, L’Air Liquide pursued a policy of expansion through cautious acquisition, Delorme seeking to acquire only companies with an established customer base.
Unlike most industries, gases producers usually performed well during a recession; the real cost of gases actually declined during the 1970s. With other fuel costs rising, the incentive to use combustion engines, which require oxygen, increased. Improved technologies resulted in the intensified use of more efficient combustion engines. Recession, though, adversely affected the customer base that consumed industrial gases. Heavy industry, like steel manufacturing, was adversely affected by the recession of the 1970s, resulting in the reduction of demand for L’Air Liquide products. This trend continued into the 1980s as European and U.S. steelmakers reduced their capacities. In order to compensate for its losses, L’Air Liquide sold its unprofitable sectors.
Technological innovations posed another major threat to L’Air Liquide’s markets. For example, new technologies allowed steel manufacturers to do away with blast furnaces and the oxygen used to power them. However, L’Air Liquide recognized that these innovations resulted in more efficient blast furnaces which, in turn, have maintained a demand for oxygen.
Welding accounted for as much as 11 percent of L’Air Liquide’s sales by the end of the 1980s. This sector traditionally used oxy-acetylene in all its welding equipment. Oxy-acetylene, the hottest and most concentrated fuel gas, provided light before the invention of the electric light bulb. Yet the welding market for L’Air Liquide began to decline as laser technology provided cleaner, safer machinery, replacing the traditional gas-fueled torch.
Restructuring for the Next 100 Years
The smallest customers of industrial gases producers tended to be hospitals which purchased gases in cylinders. U.S. industrial gases manufacturers largely left this market to the smaller producers. In Europe the larger manufacturers tended to sell cylinder gases, and then lease the cylinder. To some degree this practice insulated them against cyclical changes in the marketplace. However, the demand for cylinder gases, mainly oxygen and acetylene, was usually met by local producers since these gases could not be liquefied and were dangerous to transport. Reductions in social security drug reimbursements and lower healthcare expenditures led some gases manufacturers in Europe to believe that the market could decline in this sector. These governmental policies, along with exchange rate fluctuations, contributed to declining profits and sales for L’Air Liquide in the late 1980s.
Through our continuous technological leadership in industrial and medical gases, we are committed to creating value worldwide for customers in industry and the healthcare world by delivering innovative products and service solutions that respect both the environment and the people.
As early as 1916 L’Air Liquide entered into a joint venture with Rockefeller and Hollingsworth to form L’Air Reduction Company in the United States. After World War II, however, the French government forced L’Air Liquide to sell its U.S. holdings in order to assist France in diminishing its war debts. Not until 1969 did L’Air Liquide return to the United States. The highly international character of L’Air Liquide made the company susceptible to parity changes between the French franc and the U.S. dollar. Efforts to increase L’Air Liquide’s share of the U.S. market contributed to this volatility in the late 1980s. As L’Air Liquide’s presence in the U.S. market grew, this vulnerability increased in importance. The limiting effects of the European Monetary System made this a lesser concern in the European markets; these markets accounted for 53 percent of the net sales of L’Air Liquide and were to remain the company’s largest market into the new century.
L’Air Liquide, however, acquired Big Three Industries of Texas in 1986 for $1.6 billion. This acquisition made L’Air Liquide the second largest industrial gases manufacturer in the United States. The deal, financed by cash and U.S. borrowing, increased the company’s U.S. market from approximately 14 to 20 percent. However, the Federal Trade Commission (FTC) required L’Air Liquide to divest part of its holdings by selling certain sections of the company to ensure free competition and guard against monopolization of the industry within the United States by L’Air Liquide.
Air Products and Chemicals, Inc., a leading U.S. competitor hoping to acquire a portion of L’Air Liquide’s customer base, had begun building small plants, approximately one-eighth the size of the larger L’Air Liquide sites. Air Products believed that the structure of the larger firm slowed down its ability to respond quickly to changing market conditions. Air Products hoped this would give it a competitive edge against L’Air Liquide.
Nevertheless, L’Air Liquide expected to maintain a substantial share of its customer base in the United States. First, the size of the company allowed for large expenditures on research and development. Second, the nature of the industrial gases market enticed companies to build plants next to established customers. Traditionally, the customer and the supplier entered into long-term contracts for 15 to 25 years. The supplier installed pipelines to the customer site and pumped the gases directly to the plant, alleviating expensive shipping costs.
AGA of Sweden and L’Air Liquide dissolved a 15-year cooperative agreement in the mid-1980s. The decision not to renew the agreement resulted in the increased presence of L’Air Liquide in Belgium and Luxembourg, while AGA increased its holdings in Germany, Holland, and The Netherlands. The termination of the agreement also reduced a number of constraints that Air Liquide faced when pursuing market opportunities throughout Europe, though the monopoly of the British market by BOC continued to make the United Kingdom virtually inaccessible. Nevertheless, Air Liquide boasted an impressive record during the decade, more than doubling its markets. During this time sales in the United States, Canada, Australia, Asia, and Africa increased from 20 to 36 percent, while the gas sector alone accounted for approximately 66 percent of net sales.
Although technological innovations potentially threatened the continued use of gases, L’Air Liquide exhibited its capability to adapt to changing market conditions. In 1985 the company entered into a joint venture with Whemo Denko of Japan to supply NASDA, the Japanese Space Agency, with liquid hydrogen. In addition, the rapidly growing electronics industry in Japan required vector gases, nitrogen and hydrogen. The purification techniques developed by L’Air Liquide provided quality products for this market, with less than one part per billion of impurities. L’Air Liquide quickly took second place to Nippon Sanso in this Japanese market.
Declining sales, as a result of the recession of the early 1990s, encouraged Air Liquide to adopt a vast reorganization and cost-cutting plan, including shedding some 10 percent of its international workforce. In 1993, the company reorganized its operations into a decentralized, regionally focused structure in an effort to bring the company closer to its customers. The ultimate goal of the company’s new strategy was to step up its level of services, with the expectation that customers would be willing to pay more for the added value.
In the mid-1990s, Air Liquide value-added strategy expanded to include cogeneration activities, including the acquisition of power generation company Bayou Cogen in 1994. The company built a new power generation plant in Texas, while acquiring generation capacity in Milan, Italy. By 1995, Air Liquide was capable of producing more than 500 megawatts. In that year, the company commissioned two new plants, in Rotterdam, the Netherlands, and in Fos-sur-Mer in France. By then, the company had increased its operations in the Far East as well, when it acquired full control of Société d’Oxygène et d’Actylène d’Extrême-Orient. The following year, Air Liquide stepped up its activities in Eastern Europe, moving into Poland.
- L’Air Liquide is founded for the production of liquid acetylene based on a process developed by Georges Claude.
- Air Liquide opens plants in Brazil and Belgium.
- Company begins production of oxygen.
- Air Liquide opens U.S. subsidiary.
- Company acquires Big Three Industries, based in Texas, and becomes second largest industrial gas producer in the United States.
- Company begins five-year restructuring program to reduce costs and adopt a decentralized organization.
- Air Liquide begins power cogeneration activities, including acquisition of power generation company Bayou Cogen and construction of new plants in Italy, the Netherlands, and France.
- Air Liquide and Air Products and Chemicals agree to joint acquisition of British Oxygen Corporation; the acquisition is rejected in 2000 by the FTC, however.
- Air Liquide rejects takeover offer by Suez Lyonnaise des Eaux, acquires full control of Hede Nielsen A/S in Denmark.
Air Liquide began stepping up its activities within the semiconductor industry by entering the “wet” chemicals sector, manufacturing products such as hydrogen peroxide, ammonium hydroxide, and acids used as cleaning agents during the semiconductor manufacturing process. By then, the company had found another lucrative market for its gas products as the automobile industry began adding airbags as standard features in their new automobiles.
By the late 1990s, Air Liquide had established itself as the world-leading producer of industrial gases. In 1999, the company made an attempt to gain a still greater share of the market when it purchased the Dutch, Belgian, and German operations of the United Kingdom’s British Oxygen Corporation (BOC). Later that year, Air Liquide moved to acquire BOC outright, in a purchase offer made in cooperation with the United States’ Air Products and Chemicals. Despite BOC’s agreement to be acquired, the deal, worth $11.4 billion, was rejected by the FTC in the United States; in 2000, BOC, Air Liquide, and Air Products called off the proposed acquisition.
The following year, Air Liquide found itself the object of a takeover approach, when Suez Lyonnaise des Eaux offered to buy up Air Liquide for EUR 53 billion. The offer was quickly declined by Air Liquide, which preferred to remain independent and dedicated to its core product, rather than become part of a diversified group.
As it prepared to celebrate its 100th anniversary in 2002, Air Liquide continued to build up its global position through smaller-scale acquisitions. In September 2001, the company reached an agreement to acquire full control of Hede Nielsen A/S, based in Denmark (Air Liquide had acquired a 43 percent stake, as well as operational control of Hede Nielsen in 1992). Then, in October 2001, the company purchased six subsidiaries from debt-laden Messer Griesheim, of Germany, in a deal worth EUR 185 million. That acquisition expanded Air Liquide’s operations in South Africa, South Korea, Brazil, and Argentina, while enabling it to establish new operations in Egypt and Trinidad & Tobago. Despite the difficult economic climate at the turn of the century, Air Liquide showed every sign of continuing to lead its market in the years to come.
L’Air Liquide SA; Air Liquide International; Société Chimique de la Grande Paroisse (64.79%); Compagnie Française de Produits Oxygnes (99.85%); Société d’Oxygène et d’Acetylène d’Extrême-Orient; Société Anonyme de Fabrication de Genilis (99.99%); Société Industrielle des Gaz de l’Air (99.96%); SOGIF (98.84%); Compagnie Industrielle Commerciale et Financire des Gaz; CRYOLOR (79.99%); ALM (60%); SEPAL (50.95%). The company also has subsidiaries in the following countries: Argentina, Australia, Austria, Belgium, Cameroon, Canada, Denmark, Gabon, Ghana, Greece, Italy, Luxembourg, The Netherlands, Nigeria, Paraguay, Portugal, Senegal, Sweden, Tunisia, the United Kingdom, the United States, and Germany.
Air Products and Chemicals, Inc.; Airgas, Inc.; BOC Group; Linde AG; Mitsui Chemicals, Inc.; Nippon Sanso Corporation; Praxair, Inc.; Valley National Gases Incorporated; S.A. White Martins.
Hunter, David, “For Air Liquide, Growth Through Decentralization,” Chemical Week, June 7, 1995, p. 44.
Jemain, Alain, Les Conquerants de l’Invisible, Editions Fayard, Paris: 2002
Minder, Raphael, “Air Liquide Abandons Earnings Guidance,” Financial Times, February 26, 2002.
100 Years of Inspiration—The Air Liquide Adventure, Paris: L’Air Liquide, 2002.
—update: M.L. Cohen