In 2001, no U.S. or Canadian agency opposed the merger of GE and Honeywell, two iconic firms founded in the U.S. more than a century earlier. However, on July 3, 2001, the Competition Directorate of the European Commission announced it had decided to prohibit the merger between the two. The prohibition stood and the merger never proceeded. This was the largest such transaction ever to be stopped.
The Companies
General Electric, according to its website, is "a global infrastructure, finance and media company" that produces everything from "aircraft engines and power generation to financial services, medical imaging, and television programming." Among its other major business lines are oil and gas, cable and film, and appliances and lighting. In 2011, Forbes ranked GE the third largest company in the world. Founded in the U.S. in 1892, the firm is headquartered in Fairfield, Connecticut.
Honeywell "can trace its roots back to 1885" to the invention of a furnace regulator and alarm in Minneapolis, Minnesota. For over a half-century, its primary business was in producing regulators for heating devices, including thermostats. During World War II, the company "leveraged its scientific and engineering talent to transform itself and adapt to changing times" by beginning mass production of "an array of aeronautical equipment" including the autopilot, which the firm's engineers invented. Today the firm is a Fortune 100 company headquartered in Morristown, New Jersey. Its chief lines of business are aerospace products and services, automotive products, electronic materials, speciality chemicals, performance polymers, transportation and power systems as well as home, building and industrial controls.
Merger timeline
On October 20, 2000, United Technologies (UTX) was reportedly soon to announce an offer for Honeywell at about $50 or $51 per share. GE quickly reacted on October 22 with a bid of $55 per share. The deal would be the largest acquisition of an estimated 1700 completing during the tenure of GE CEO Jack Welch. Analysts including Saloman Smith Barney applauded the deal, suggesting that "GE's superb management systems would improve performance at Honeywell."
On May 2, 2001, the U.S. DOJ approved the merger with minor changes, requiring only that the companies "divest Honeywell's helicopter engine business and... authorize a new third-party MRO service provider for certain models of Honeywell aircraft engines and APUs." GE and Honeywell agreed to these "modest concessions".
The European Commission under Commissioner Mario Monti approached the merger differently. In February 2001, Monti had launched an extended investigation into the merger, which was expected to last several months. The chief concerns of the EC were "portfolio" or "bundling" effects feared to lessen competition in production of aircraft engines, avionics, and airplane leasing. European regulators consulted competitors about whether the proposed merger would create "market dominance". Among the competitors consulted was United Technologies. GE offered a variety of remedies, including "limits on its pricing of bundles or agreements to separate the leasing and engine businesses."
In mid-June 2001, politicians including President George W. Bush made statements urging the EC to complete its merger review process as the EC refused a series of proposed concessions by GE. Commissioner Monti responded: "I deplore atttempts to misinform the public and to trigger political intervention... this is a matter of law and economics, not politics." Monti officially vetoed the merger between the two powerful U.S.-based companies on July 3, 2001.
Sources:
The Ill-Fated GE/Honeywell Merger, NYU Stern Business School Mini-Case revised 28 Aug 2002.
Transatlantic Divergence in GE/Honeywell: Causes and Lessons by Morgan and McGuire.
Journal of European Public Policy 11:1 February 2004: 39–56.
EC decision of July 3, 2001.
Fox, Eleanor M. "GE/Honeywell: The U.S. Merger that Europe Stopped-- A Story of the Politics of Convergence." Antitrust Stories. Foundation Press, 2008.
Related Readings:
EC Merger Policy after GE/Honeywell and Airtours by Cento Veljanovski. 1 Jul 2003 for Antitrust Bulletin, Winter 2003
Transatlantic Divergence in Merger Review by Charlotte Berneheim. 5 Jun 2008 for Master's Thesis in Business Economics, Uppsala Universitet
General Electric/Honeywell - An Insight into the Commission’s Investigation and Decision by Dimitri Giotakos, et al., Oct 2001 (EU) Competition Policy Newsletter
