- The Washington Times - Wednesday, July 4, 2001


European regulators dealt a final blow to General Electric Co.'s proposed $41 billion purchase of Honeywell International Inc. yesterday, marking the first time overseas authorities killed a proposed merger between two companies based in the United States.
The European Commission, which handles merger approvals for its 15 member countries, charged that the combination would have allowed GE, the world's largest company by market value, to choke off competition in the market for corporate jet engines and aircraft electronics.
"The merger between GE and Honeywell, as it was notified, would have severely reduced competition in the aerospace industry and resulted ultimately in higher prices for customers, particularly airlines," European Competition Commissioner Mario Monti said.
The rejection prompted Honeywell's board last night to replace Chairman and Chief Executive Michael Bonsignore with former Chairman and CEO Lawrence Bossidy.
The European move was widely expected, but it signaled a particularly bitter end to the row between GE and European officials. In most cases, when a merger is likely to be blocked, the companies involved withdraw their application to avoid a high-profile rejection.
GE Chairman and Chief Executive Officer Jack Welch, who put off his retirement to shepherd the deal, expressed "profound regret" at the European decision, calling it a "setback."
Fairfield, Conn.-based GE needs the approval of European authorities to buy Morristown, N.J.-based Honeywell, just as European companies have to comply with American antitrust laws in the United States.
GE spokesman Gary Sheffer held out the possibility of an appeal in European Union courts. But few observers expected legal action could save the deal. Of the 15 mergers EU authorities have blocked over the last 10 years, six have been taken to court, none successfully.
The odds of a successful legal challenge are "very slim," said Ed Wheeler, an analyst with Buckingham Research Group.
Mr. Sheffer said GE will not submit a new merger plan to European authorities, which would restart the approval process.
European authorities objected to the deal on the grounds that GE, which had $130 billion in sales last year, would be able to use its dominance in the jet-engine sector to undercut European rivals Rolls-Royce PLC of Britain and Thales SA of France.
In particular, they feared GE would be able to package its own jet engines with Honeywell's avionics and finance sales through GE Capital Aviation Services.
On Friday, GE rejected Honeywell's proposal for last-ditch revisions to the deal that would have pared more than $1 billion from the takeover price. In return for a lower purchase price, Honeywell asked GE to divest more of its holdings to satisfy European concerns.
Mr. Monti sought to downplay the trans-Atlantic friction that has arisen from the European stance, preferring to emphasize his close links with American regulators.
"The European Commission and the U.S. Department of Justice have worked in close cooperation during this investigation," Mr. Monti said. "It is unfortunate that, in the end, we reached different conclusions."
The Justice Department approved the deal on May 2, under the condition that Honeywell sell off its helicopter-engine business.
Mr. Monti previously lashed out at what he called unjustified political pressure to approve the deal. Mr. Welch spoke to White House Chief of Staff Andrew Card when the deal began to fall apart, and Treasury Secretary Paul H. O'Neill heavily criticized European opposition in a Monday interview with The Washington Times.
European regulators have blocked only one other U.S. merger, between WorldCom and Sprint in 1999, but in that case they agreed with their American counterparts. The Department of Justice sued to stop the deal the following day.
The collapse of the GE-Honeywell link-up is a major defeat for Mr. Welch, 65, who postponed his April retirement as GE's highly successful CEO to see the Honeywell merger through to completion. GE veteran Jeffrey Immelt will succeed Mr. Welch.
Mr. Immelt told Bloomberg News yesterday that GE will purchase more companies in the future, despite the collapse of its bid for Honeywell.
"We'll continue to grow through technology and through acquisitions," said Mr. Immelt, named in November to succeed Mr. Welch.
GE shares fell 69 cents to $49.51 yesterday on the New York Stock Exchange, while Honeywell shares gained 99 cents to $35.10.

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