An agreement would accelerate consolidation sweeping the industrial gas sector where slower economic growth has weakened demand in the manufacturing, metals and energy sectors and put pressure on smaller players to compete.

A combination of Praxair and Linde would face scrutiny from regulators in a year when other major deals, such as U.S. oilfield services provider Halliburton (HAL) $34.6 billion acquisition of Baker Hughes (BHI), were shot down due to antitrust concerns.

Details of the talks, which were first reported by the Wall Street Journal, were not immediately clear.

One person familiar with the matter said Praxair was considering a takeover of Linde, while two other sources said Linde wanted a merger of equals.

A fourth person, who is close to Linde, said there had been talks, but that no agreement had been reached.

One of the sources said a share swap was one possible structure of a deal but that talks were still very preliminary.

Shares in Linde jumped almost 9% to an eight-month high and were up 7.4% to 149.70 euros by 0920 GMT, making them the top gainer on Germany’s blue-chip index, which was down 0.3%.

Linde has a market value of around 27 billion euros ($30.4 billion), compared with about $33.7 billion for Praxair.

Representatives for Danbury, Connecticut-based Praxair could not be immediately reached for comment. Munich, Germany-based Linde declined to comment.

Sector Shake-Out

Analysts said talks may have been spurred by French Air Liquide’s acquisition of smaller U.S. peer Airgas (ARG) for $10.3 billion this year, making the world’s leading industrial gases group a strong second player in North America behind Praxair.

Linde has a strong position in healthcare gases in North America, while Praxair is more focused on industrial on-site production, which means a market share of close to 50% resulting from a merger should not spark opposition from U.S. anti-trust regulators, analysts said.

Baader Helvea analyst Markus Mayer said overlaps in the rest of the world could help generate synergies of up to 800 million euros in a merger.

“Asset disposals are hardly crippling in a business of regional oligopolies, and the transaction could fix strategic challenges for both companies,” Jefferies analysts said in a note.

They said they estimated that Praxair could pay a 26% premium over Linde’s market value to gain control of it and still achieve an 8% return on invested capital in the full year and improve its free cash flow per share by $1.70.

Perella Weinberg is advising Linde, while Credit Suisse, among others, is working for Praxair, sources said.