Honeywell, GE Deal Hits EU Barrier

WASHINGTON — The proposed merger between General Electric Co. and Honeywell International Inc. is on the verge of becoming the first all-U.S. merger to be killed by European antitrust authorities after passing muster in the United States.

GE and Honeywell executives admitted Thursday that their $42-billion merger was doomed because their final offer to sell a large part of Honeywell’s aerospace operations did not meet the demands of European antitrust authorities.

European Union law gives the EU’s executive commission the power to block mergers of any companies that do substantial business in Europe. The EU has used that authority 14 times since 1990 to block mergers between American companies. But in all those cases, U.S. antitrust authorities also were opposed.

GE Chairman Jack Welch, who met twice Wednesday with EU antitrust officials to try to salvage the merger, said Thursday that Europe’s conditions were too tough.

“We have always said there is a point at which we wouldn’t do the deal,” Welch said. “The [European] commission’s extraordinary demands are far beyond that point.”

GE and Honeywell had proposed jettisoning Honeywell’s jet engine business and certain other aviation products to win approval for what would be one of the largest industrial mergers in history. GE spokesman Gary Sheffer said the $2.2 billion in divestitures was a “final offer.”

Honeywell spokesman Tom Crane declined comment. But in a separate statement, the company said it was considering walking away from the merger.

“While continuing to support the merger, we have a comprehensive contingency plan in place if we must move forward as an independent company,” Honeywell Chairman and CEO Michael R. Bonsignore said.

The apparent end of the deal sent Honeywell stock plunging $5.16, or 12%, to $37.10 on the New York Stock Exchange. The shares had surged as high as $55 after the deal was announced in October. GE shares rose $1.01 to $48.86 Thursday, as some investors expressed relief the ordeal might be drawing to a close.

Mario Monti, the EU’s antitrust commissioner, had given GE and Honeywell a deadline of midnight Thursday to propose sufficient divestitures, and he has until July 12 to make his final decision. He could be overruled by the EU’s full panel of 22 commissioners--but that has never happened before.

Monti, who turned down a chance to be Italy’s foreign minister because he wanted to remain as the EU’s antitrust chief, feared the merger--without massive divestitures--would put the new American company in a dominant position in the sale of jet aircraft engines and other parts.

For Welch, who had postponed his retirement until the end of this year to oversee the merger, rejection of the deal would kill his hopes of uniting GE’s aircraft engine business with Honeywell’s electronic aircraft controls.

It also could test the trade and political bonds between the United States and Europe. After the EU expressed opposition to the merger of aerospace giants Boeing Co. and McDonnell Douglas Corp. in 1997, a trade dispute nearly erupted between the United States and European nations. That merger ultimately went ahead.

The largest merger successfully opposed by the EU was WorldCom Inc.’s plan to buy Sprint Corp. for $152 billion. The U.S. Justice Department also blocked that deal.

Honeywell has 125,000 employees around the world, including 3,300 in Southern California. GE employs 340,000 worldwide, including workers in San Rafael, Calif., and Ontario.

“The marketplaces on both sides of the Atlantic are becoming very integrated . . . and there are a lot more competitive issues that must be assessed,” said Willard Berry, president of the European American Business Council, a Washington-based advocacy group on transatlantic trade issues.

European antitrust review, he added, “has become a really huge issue” for U.S. companies.

Calling the proposed merger “an important deal,” U.S. Trade Representative Robert B. Zoellick said he has discussed the proposed combination with European officials.

Eleanor Fox, a New York University law professor who served on a Justice Department task force on global antitrust issues, said global firms like GE and Honeywell should be better prepared for antitrust scrutiny overseas. She said she saw no sign that protectionism motivated the EU’s hard line against the GE-Honeywell deal.

In addition to blocking 14 American mergers, the EU has gained significant modifications of scores of others, including the 1997 Boeing-McDonnell Douglas deal and last year’s merger of America Online Inc. and Time Warner Inc.