EC expresses concern on GE-Honeywell merger
The $40-billion takeover
01 March 2001
The $40-billion takeover of Honeywell Corporation by US conglomerate, General Electric, has run into a hurdle with the European Commission. The merger of the former into the latter was, indeed, a gargantuan exercise, for which legendary GE chairman, Jack Welch, has delayed his retirement by a year. He has chosen to stay back to oversee the orderly transition of the Honeywell business into GE, despite having anointed Jeffrey Immelt to succeed him as chairman.
Expressing concern about the joint company's power to supply a large part of the components needed to build an aircraft, the European Commission sent the merger proposal back to GE to find better remedies for antitrust concerns about the US conglomerate's merger with Honeywell. According to Mario Monti, the EU's antitrust commissioner, the commission would open a full, four-month inquiry.
The commission is concerned about the effect of the merger on competition in the area of supply of components to the aircraft. The commission's decision comes despite several rounds of personal meetings Mr Welch has had with the commission authorities where he tried to assuage feelings that the merger would add to the combined marketing muscle of the two companies and squeeze out competition. The fear of competition being squeezed out has also been raised by clients of the new company, as well as competitors from the US and EU.
Obviously, the efforts by the GE chairman have failed to cut ice with Brussels, which has not been satisfied with GE's efforts on the issue of competition. The new investigation, which would go into July, stretches by more than four months the original target date of end-February, set by Mr Welch for the closure of the deal. While GE has offered commitments to alter its behaviour in the arena of competition, the commission prefers divestments, which it believes, renders the monitoring process simpler.
The announcement by the European Commission about the detailed investigation has hit the stocks of the two companies, widening the spread between the bid price and Honeywell's share price. Though most analysts expect the deal to win final approval from all regulatory authority, arbitrageurs, who seek to profit from the spread, said it had widened from about $1 four days ago to more than $2.50.