[837] in peace2
EU Objections to GE Merger with Honeywell
daemon@ATHENA.MIT.EDU (auyeung@alum.mit.edu)
Fri Jun 15 02:00:35 2001
Date: 14 Jun 2001 22:58:44 -0700
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EU May Sink GE's Plan to Take Over Honeywell
William Drozdiak
Washington Post Service
Friday, June 15, 2001
Companies Complain That Europe Insists on Intolerable Conditions
BRUSSELS The $45 billion takeover of Honeywell International by General Electric hovered on the brink of collapse Thursday after the companies said the European Union's antitrust authorities were setting intolerable conditions to win approval for the deal.
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The potential demise of what is billed as the largest industrial combination in history threatened to raise political and economic tensions between the United States and Europe just as President George W. Bush was holding a summit meeting with the 15 leaders of the European Union in Sweden.
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Executives for both companies said they had gone as far as possible in submitting a final package of $2.2 billion worth of divestments in Honeywell's aerospace business in a bid to appease EU concerns that the deal would result in GE dominating the aerospace products market.
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But merger experts in the EU's executive commission want them to dispose of $6 billion in assets, a price the companies consider too exorbitant.
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"We have always said there was a point at which we wouldn't do the deal," said Jack Welch, GE's chairman and chief executive. "The commission's extraordinary demands are far beyond that point. This shows you are never too old to get surprised."
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It was unclear whether Mr. Welch's complaints Thursday were part of a brinksmanship game to cow the EU commission into relaxing its demands.
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Mr. Welch said the EU's demands would require sacrificing virtually all of Honeywell's avionics business and rob the deal of its original purpose.
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"In this case, the European regulators' demands exceeded anything I or our European advisers imagined, and differed sharply from antitrust counterparts in the U.S. and Canada," Mr. Welch said.
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With the United States and the European Union struggling to resolve a raft of trade conflicts, there were fears that the deal could carry important political repercussions if the U.S. Congress took umbrage over moves by European regulators to thwart the deal.
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A White House spokesman confirmed that the Bush administration might raise the fate of the deal at the summit meeting. He said the White House chief of staff, Andrew Card, had spoken with Mr. Welch about the bleak state of negotiations with the EU commission while the Bush delegation was in Brussels on Wednesday.
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If the EU blocked the deal, it would mark the first time that European regulators foiled a merger between two American companies that had already been approved by the U.S. government. The Justice Department gave its blessing to the deal in early May after extracting a promise that Honeywell would sell off its helicopter engine business.
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Until now, the United States and the EU have collaborated closely in policing the competitive impact of mergers as a growing number of companies acquire a global profile and perspective. But the divergent views over the GE-Honeywell deal between regulators on both sides of the Atlantic could portend new uncertainties for future mergers.
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Mario Monti, the EU's antitrust commissioner, met twice with Mr. Welch on Wednesday but the talks made no headway in bridging the gap, according to sources familiar with the discussions. Mr. Monti and his staff have repeatedly warned about the dangers of allowing GE and Honeywell to acquire overwhelming control of global aerospace markets by "bundling" GE jet engines with Honeywell electronics and financing from GE Capital Aviation Services, or GECAS. This combination, the EU commission fears, would produce package deals for commercial jet airplanes that would annihilate the competition and quickly lead to much higher prices for consumers.
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GE executives said Thursday they had offered to set up GECAS as a separate "ring fenced" entity that would maintain separate accounts. But the EU's merger task force has been demanding a full spin-off, a condition that GE claims would amount to a deal-breaker.
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Mr. Monti said his staff had spent a great amount of time with GE executives trying to find an acceptable compromise, but he said GE would not accept the commission's proposed solutions.
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"We have explored commitments which would not have entailed further divestments in the aerospace industry but rather a structural commitment to modify the commercial behavior of GECAS," Mr. Monti said. "We regret that this avenue has not been pursued."
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