GE refuses to meet EU divestiture demands on Honeywell deal
Associated Press
Friday, June 15, 2001
BRUSSELS, BELGIUM -- General Electric Co. and Honeywell International refused to meet Europe's demands for paring down their $41 billion proposed merger, all
but ending a bid to forge one of the world's largest industrial companies.
The merger would have created a company with a combined 8,300 employees in Minnesota, making it the ninth-largest for-profit company here.
GE Chairman and Chief Executive Jack Welch said the proposal the companies submitted to the European Commission on Thursday did not come near to meeting
conditions set by the commission.
Welch said in a prepared statement Thursday that GE "wanted to complete the transaction but we have always said there is a point at which we wouldn't do the deal."
The GE-Honeywell proposal, which includes $2.2 billion in divestitures in Honeywell's aerospace business, was a "final offer," said GE spokesman Gary Sheffer.
Rejection by European regulators, who must make a final decision by July 12, would kill Welch's vision of combining GE's dominant aircraft engine and servicing business
with Honeywell, a key supplier of aircraft electronics for commercial jets and air traffic control systems.
It also would be a personal blow for Welch, who postponed his retirement until the end of 2001 to oversee the merger.
If GE isn't able to salvage the acquisition, United Technologies Corp. is likely to make another bid for Honeywell. GE had outbid the Hartford, Conn.-based company for
Honeywell in October.
United Technologies Chief Executive George David, who said in April that he still was interested in buying Honeywell, may be able to bide his time while regulators
review GE's proposal. Peter Murphy, a United Technologies spokesman, declined to comment on a possible bid.
Meanwhile, Honeywell said in a separate statement it already was considering the option of going it alone.
"While continuing to support the merger, we have a comprehensive contingency plan in place if we must move forward as an independent company," said Honeywell's
chairman and CEO, Michael Bonsignore.
The EU's top antitrust official, Mario Monti, expressed "regret" at the companies' position but said his office would continue to review the deal "unless the merger
notification is formally withdrawn."
Sheffer said GE has no plans to withdraw the proposal.
The plan would reduce Honeywell's $25 billion in revenue by 9 percent, and combined GE-Honeywell revenue would decline by about 1.5 percent. Despite the divestitures,
GE said anticipated cost savings of $3 billion from the merger would remain largely intact.
Price of business
GE said regulators were demanding billions more in divestitures of virtually all of Honeywell's aviation electronics business and its production of generating systems that
provide power to planes while they are on the ground.
Welch said the demands show "you are never too old to get surprised."
"In this case, the European regulators' demands exceeded anything I or our European advisers imagined," he said in the statement.
Monti said late Thursday that European regulators still were "giving guidance on how best to resolve the remaining competition concerns."
"As I have indicated to Mr. Welch, we were ready to consider improved commitments until the legal deadline" of midnight Thursday in Brussels for concession offers.
But Welch left Brussels Thursday after a third meeting with Monti in two days. The GE statement said company officials are not optimistic their proposal will be
approved by regulators.
To do business in Europe, U.S. companies must comply with EU law just as European companies must abide by U.S. law to do business in America. An EU decision to
block the deal also could spark a trans-atlantic trade war, as nearly happened in 1997 when the EU raised major objections to Boeing's impending merger with
McDonnell Douglas.
Europe has become a tougher environment for mergers, with Monti in his two years on the job blocking or requiring substantial modifications to several high-profile
deals, including a proposed deal to merge MCI WorldCom and Sprint.
In his statement, Monti said he was not necessarily seeking "further divestments in the aerospace industry but rather a structural commitment to modify the commercial
behavior of GECAS," GE Capital Aviation Services.
Monti's office previously cited concerns about the effect on competition of "bundling" GE jet engines with Honeywell electronics and GECAS financing.
GECAS is one of the world's leading buyers of commercial aircraft, which it later sells or leases to airlines and other customers.
The EU is worried GE could use GECAS' financial clout to sway airlines and aircraft manufacturers to choose GE engines over competing brands made by such
companies as Rolls-Royce Plc and Pratt & Whitney.
GE said Thursday that it offered to set up GECAS as a separate "ring-fenced" entity to deal at arm's length with Honeywell.
But that apparently did not go far enough to satisfy the Commission's Merger Task Force, which initially pressed GE to spin off GECAS to the company's existing
shareholders. GE negotiators had dismissed that option as unacceptable.
After the midnight deadline, the commission will pass along the offer to competitors and national antitrust authorities for comment. The office then will assess the
responses and make its final recommendation to the full commission, which will rule no later than July 12.
Local presence
Even without acquiring Honeywell, GE's operating philosophy is likely to have an impact in Minnesota, because former GE executives now oversee Minnesota
corporations with 22,000 employees in the state.
In April, Honeywell said it had about 6,500 employees in the Twin Cities, though a spokeswoman on Thursday declined to provide any specific current information about
the company's employment levels here.
GE currently employs about 1,800 people in Minnesota, mostly in its Fleet Services and Card Services businesses.
Honeywell has steadily cut the number of employees here in recent months as it consolidated its earlier merger with AlliedSignal and prepared to merge with GE, a
company known for its spartan operations and willingness to slash unprofitable units. Honeywell announced a 500-person job cut in early March, and then a 350-person
job cut in late April.
The largest of Honeywell's local operations is Home and Building Control, based in Plymouth but with separate facilities in Minneapolis and Bloomington.
The company's local aerospace facilities include its flight operations at Minneapolis-St. Paul International Airport and its military avionics operation in Minneapolis.
Honeywell also has research facilities in the Twin Cities, including its Solid State Electronics Center, a Plymouth-based computer chip development operation, and its
Honeywell Technology Center in Minneapolis. The company's electronic materials operations are in Hopkins.
Officials of Teamsters Union Local 1145, which represents Honeywell manufacturing workers, could not be reached Thursday.
White House spokesman Ari Fleischer, traveling with President Bush in Sweden on Thursday, said Welch contacted White House Chief of Staff Andrew Card about the
conflict between GE and European regulators.
"I know they spoke. I can't say specifically if there was a request, what it was. The United States obviously supports the merger." Asked whether Welch wanted Bush to
press the matter with EU officials, Fleischer said, "I'm not prepared to say that. I don't have that information."
Honeywell shares closed down $5.16, or 12.2 percent, at $37.10 Thursday on the New York Stock Exchange, where GE shares rose $1.01, or 2.1 percent, at $48.86.
-- Staff writer Steve Alexander and librarian Sandy Date contributed to this report.
-- Bloomberg News contributed to this report.
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