By Ludwig Burger, Greg Roumeliotis and Arno Schuetze
FRANKFURT (Reuters) - Germany's Linde agreed to revive talks with U.S. rival Praxair to create a $65 billion industrial gases giant which will have its main operations run from Connecticut, two sources familiar with the deal said on Wednesday.
The deal is being pursued as a "merger of equals" thanks to a 50:50 valuation split, these people said.
But a combined company will have its operating base in Danbury, Connecticut, where Praxair is headquartered and Praxair's Chief Executive Steve Angel will head the merged company, these sources said on Wednesday, after Linde confirmed it would resume talks.
In a largely symbolic gesture, Linde will be the name of the combined company, and Wolfgang Reitzle, Linde's chairman would also be chairman of the combined firm, the sources said.
A "meaningful" representation would be retained in Germany, these people said, adding that the primary listing would be in New York and the secondary listing in Frankfurt.
Talks broke down in September amid disagreements over where the combined firm would have its headquarters and research and development, as well as over who would occupy the main management roles, sources told Reuters at the time.
On Wednesday Linde's chief executive Wolfgang Buechele paved the way to a revived deal by stepping down with immediate effect. "With the resumption of the talks, a successful merger is now drawing near," Buechele said in a statement.
Buechele will be replaced by Aldo Ernesto Belloni, a 66-year-old former executive board member who retired two years ago.
"With a succession plan in place, the necessary continuity is assured without interruption for the demanding tasks of the coming months," Buechele added, without elaborating on why he was leaving some four months earlier than planned.
The companies now aim to have drawn up an outline agreement before the Christmas holidays, sources close to the matter said.
Belloni, who retired at the end of 2014 after 14 years on Linde's management board, is a close ally of non-executive Chairman Wolfgang Reitzle, who needed to steady the ship after an exodus of key people in the wake of the collapse of initial merger talks with Praxair in September.
Finance Chief Georg Denoke left immediately after the talks failed in September while Buechele said he would stay on only until April 2017, leaving Reitzle, Buechele's predecessor as CEO, to plot the company's future course.
Linde and Praxair, alongside rivals Air Liquide and Air Products, are struggling with slower economic growth that has weakened demand from the manufacturing, metals and energy industries and put pressure on smaller players, leading to further consolidation in the sector.
Air Liquide bought Airgas Inc, the leader in U.S. packaged gases, in a $13.4 billion deal finalised in May.
Praxair generates lower core earnings but with a higher sales margin than its German peer.
Shares in Linde were up 2.4 percent at 160 euros on Wednesday, valuing the company at around 29.8 billion euros ($32 billion). Shares in Praxair were up 1.7 percent at $121, giving it a market value of around $34.6 billion.
Linde decided to resume negotiations after Praxair offered to locate some central functions of the combined group in Germany, two people familiar with the matter told Reuters on Wednesday.
Under the proposed new terms, one of the combined entity's executive board members would be based in Munich, where Linde is headquartered, and the main German sites would be preserved, the sources said.
Linde said the supervisory board vote to resume talks was unanimous, meaning the board's labor representatives must have been won over.
Sources close to the matter have said that opposition from the workers' representatives due to concerns for German jobs was a factor in the failure of talks in September.
Still, the success of a deal hinges on a clear chain of command. On an earnings conference call on October 27, Praxair's Angel said a deal could yield significant synergies "by ensuring upfront that leadership is unambiguous, and the company is operated in a clear and consistent way."
Angel said Praxair's “operational excellence", could complement Linde's “technology in engineering.”
Linde had already said last week it was considering a revised proposal it had received from Praxair about a potential merger of equals, which was confirmed by Praxair.
(Additional reporting by Jens Hack in Munich; Writing by Edward Taylor; Editing by Greg Mahlich and Adrian Croft)