EU recommends formal block of GE-Honeywell deal
Wall Street Journal
Wednesday, June 20, 2001
BRUSSELS, BELGIUM -- European antitrust enforcers have recommended formally blocking General Electric Company's bid to acquire Honeywell International
Inc., moving closer to officially ending the companies' quest for regulatory approval, people familiar with the situation told the Wall Street Journal.
In a draft decision prepared this week, the European Commission's Merger Task Force deemed GE's latest proposals to win antitrust approval as insufficient and
confirmed that the company's proposed $41 billion acquisition will not be allowed to go through in its current form. If the two sides cannot bridge their differences, the
draft decision would proceed to the commission's College of Commissioners for final approval.
The draft decision means that the number of scenarios under which the deal might still survive is rapidly diminishing. It also signals that the commission is unlikely to
suddenly change its mind about a deal that it fears could create an aerospace juggernaut capable of undercutting competition in the industry.
GE President Jeffrey Immelt had said in an interview published earlier Tuesday that there was "zero" chance the merger would go ahead.
"The indications we have from the European Commission lead us to think the offer won't be accepted," Immelt told the French daily Le Monde, referring to the
executive arm of the 15-nation European Union.
"The percentage is zero," he said when asked to estimate the chances of a successful conclusion to the proposed acquisition, which would create one of the world's
largest industrial companies.
Last Thursday, European Competition Commissioner Mario Monti asked GE officials and lawyers in a phone conversation to withdraw the application for antitrust
approval so that the EU wouldn't have to reject it, several people familiar with the situation said. GE was open to that, but deferred to Honeywell, these people said.
Honeywell General Counsel Peter Krindlin, who is being advised by attorney James Venit of Skadden Arps in Brussels, told GE that Honeywell opposed pulling the
deal, because it believed it might still pressure Monti to soften his stance, these people said. GE went along. Under the terms of the merger agreement, should GE
unilaterally terminate the agreement, Honeywell could sue to enforce the merger pact.
A GE spokeswoman said Tuesday that there was no tension between GE and Honeywell as the two companies forge ahead with the merger process, even though people
close to Honeywell have said some executives and board members are disgruntled that GE isn't pushing harder for approval.
"We're on the same page," said the GE spokeswoman, Louise Binns. "The final undertakings were submitted by GE and Honeywell. We remain fully committed to the
final proposal we have submitted." She said GE "will be continuing to communicate with [European Union] member states to outline the merits of our proposal and
the reasons we believe our final offer is sufficient."
A Honeywell spokesman, Tom Crane, said: "We're still committed to the merger and we expect GE to continue working with the EU over the next three weeks to
complete the transaction."
No compromise in sight
GE and Honeywell might still offer to divest more businesses. If those offers were clear-cut enough and satisfied all competition concerns, the commission could accept
them and reconsider its determination to kill the merger, which has been approved by the U.S. Department of Justice.
But GE executives have said repeatedly that it is through negotiating and they are not going to raise the company's offer, officially submitted to the commission last
Thursday. In that proposal, GE offered to sell several Honeywell units with combined annual sales of $2.2 billion and to introduce separate management for GE
Capital Aviation Services, known as Gecas, the company's powerful aircraft financing and leasing arm.
But the commission deemed GE's offer insufficient and asked the company either to sell more of Honeywell's core businesses or to come up with a more far-reaching
remedy to separate Gecas. GE balked at demands for greater divestitures and rejected any measures that would leave it with less than 100 percent ownership of Gecas.
GE's negotiators argue that the commission's analysis of the deal has been based on shaky economic theories that have led it to conclude, erroneously, GE says, that
the combined company could push its weaker rivals out of the market.
Political fallout
The apparent divergence of opinion between U.S. officials and their more demanding European counterparts has triggered a litany of statements from U.S. officials
and business executives accusing the commission of unfair interference with U.S. business. Faced with this criticism, Monti said Monday that the commission's
investigation "is a matter of law and economics, not politics."
The commission circulated some of GE's proposed antitrust remedies to rivals of GE and Honeywell to get some feedback on their validity and to confirm with
competitors that certain antitrust remedies would be sufficient.
"It's more of a procedural step," one person familiar with the situation said about the consultation. In fact, the commission isn't even mentioning Gecas, in its industry
consultation, as one of the antitrust remedies, because it has already decided that GE's proposal to "ring-fence" the management and administrative functions of the
leasing unit doesn't go far enough.
Instead, industry feedback is being sought on the commercial viability of several of Honeywell's units that GE has offered to sell. The commission still thinks that these
units have little chance of surviving on their own because they would be "carved out" from a larger chunk of Honeywell business.
-- The Associated Press contributed to this report.
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