EU prohibits US merger, July 2001 – European Sources Online

Author (Person)

Davies, Eric

Publisher

ProQuest Information and Learning

Series Title

In Focus

Series Details

9.7.01

Publication Date

07/07/2001

Content Type

News, Overview, Topic Guide | In Focus

On 3 July 2001 the European Commission announced that it had decided to prohibit the world's biggest industrial takeover - the proposed $42bn (£30bn) merger between US companies General Electric (GE) and Honeywell. In the Commission's view, the merger would have created or strengthened the companies' dominant positions in several markets. Remedies proposed by General Electric were insufficient to allay the Commission's fears over the merger.

Background

The takeover of Honeywell by GE was agreed by the companies in October 2000. European regulatory clearance was sought on 5 February; on 1 March the Commission - having undertaken an initial review of the proposed merger - announced its intention to conduct a 'full investigation'. The legal test was said to be 'the likelihood that the merger might create or reinforce a dominant position as a result of which effective competition would be significantly impeded in the common market'. The results of the investigation were announced on 3 July 2001. According to the press release, the investigation

'demonstrated that GE alone already had a dominant position in the markets for jet engines for large commercial and large regional aircraft. Its strong market position combined with its financial strength and vertical integration into aircraft leasing were among the factors that led to the finding of GE's dominance in these markets. The investigation also showed that Honeywell is the leading supplier of avionics and non-avionics products, as well as of engines for corporate jets and of engine starters'.

According to the Commission, the proposed merger 'raised strong concerns among suppliers and customers, i.e. airlines, on both sides of the Atlantic. Several US firms have complained and took an active role at a hearing organised by the Commission at the end of May.' The Commission was also quick to point out, however, that 'contrary to some statements reported in the media, the large aircraft manufacturers Boeing and Airbus have not been particularly active in the proceedings.' During the negotiations, GE twice proposed revisions to the deal in order to meet the Commission's concerns, but was unable to remove all competition concerns, and 'the Commission had no choice but to prohibit the merger.'

Announcing his decision, European Competition Commissioner Mario Monti said:

'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. However, there were ways of eliminating these concerns and allowing the merger to proceed ... I regret that the companies were not able to agree on a solution that would have met the Commission's competition concerns'.

The Commission is involved in this case because of the potential impact on business in Europe. The Commission is the regulatory authority for mergers and acquisitions in the 18-country European Economic Area (the EU Member States plus Iceland, Liechtenstein and Norway). As such, it has authority to review all mergers, acquisitions, takeover bids and other deals that can be defined as 'concentrations', and which involve companies with a combined worldwide turnover of more than €5 billion and minimum European sales of €250 million for at least two of the companies concerned.

The Commission has ruled on other cases concerning US companies, including WorldCom/Sprint, which was the first US-only merger to be prohibited by Europe (GE/Honeywell is the second). Previous Commission decisions have tended to reflect those of the US competition authorities. However, the GE/Honeywell merger received conditional clearance from the US Department of Justice (DoJ) in May, so the Commission's decision clearly conflicts with the US position.

Although it is possible to appeal against the Commission decision, it seems unlikely that the companies will do so.

Reaction to the EU decision

The view in the US seems to be that the EU is simply protecting its own interests but, responding to criticism of the process, Commissioner Monti was adamant that:

'The European Commission has been reviewing mergers and acquisitions for over 10 years and each time it has applied the same basic principles and the same 'market dominance' test ... The nationality of the companies and political considerations have played and will play no role in the examination of mergers, in this case as in all others.'

Speaking of the relation between the Commission and the DoJ, Mr Monti commented:

'It is unfortunate that, in the end, we reached different conclusions, but each authority has to perform its own assessment and the risk of dissenting views, although regrettable, can never be totally excluded. This does not mean that one authority is doing a technical analysis and the other pursuing a political goal, as some might pretend, but simply that we might interpret facts differently and forecast the effects of an operation in different ways. The GE/Honeywell is a rare case where the transatlantic competition authorities have disagreed. I am determined to strengthen our bilateral co-operation in the future to try and reduce this risk further'.

From its perspective, the DoJs Antitrust Division stated:

'Having conducted an extensive investigation of the GE/Honeywell acquisition, the Antitrust Division reached a firm conclusion that the merger, as modified by the remedies we insisted upon, would have been procompetitive and beneficial to consumers. Our conclusion was based on findings, confirmed by customers worldwide, that the combined firm could offer better products and services at more attractive prices than either firm could offer individually. That, in our view, is the essence of competition.

The EU, however, apparently concluded that a more diversified, and thus more competitive, GE could somehow disadvantage other market participants. Consequently, we appear to have reached different results from similar assessments of competitive conditions in the affected markets.'

There were further critical comments from the US side. Jack Welch, GE's Chairman and CEO, said:

'[we] wanted to complete the transaction but we have always said there is a point at which we wouldn't do the deal. The Commission's extraordinary demands are far beyond that point. This shows you are never too old to get surprised. In this case, the European regulators demands exceeded anything I or our European advisors imagined, and differed sharply from antitrust counterparts in the U.S. and Canada.'

In the same vein, another spokesman for the company said: 'The Commission took a fundamentally different approach to ... its counterparts in the US, Canada and nearly a dozen other jurisdictions, which approved the acquisition with few, if any conditions'.

In the wider context of EU-US relations given the recent disagreement over the Kyoto Protocol, Republican Senator Phil Gramm was reported to have criticised the 'the logic of [Europe's] environmental policy [and] regulatory policy' and expressed concern that we don't end up having bad policies imposed on us as Europeans try to protect themselves against competition when they've lost competitive edge based on their policies'. Speaking prior to the decision, US Senators were reported to be considering retaliatory action.

Further information within European Sources Online:

European Sources Online: Topic Guides

The Competition Policy of the European Union
The European Union and the United States

European Sources Online: European Voice

	15.02.01:	Mergers
	15.03.01:	Clearing the way for US-style mergers
	15.03.01:	Tensions set to rise over GE merger case
	07.06.01:	GE denies air engines deal broke EU terms as Welch flies in

European Sources Online: Financial Times

	04.05.01:	Matter of trust
	09.05.01:	Brussels fears GE's bundling
	17.04.01:	Competing beliefs
	18.04.01:	Brussels enlists airlines to scrutinise GE deal
	25.04.01:	Brussels likely to tone down GE deal probe
	11.05.01:	Brussels could force GE to make divestments
	25.05.01:	GE, Honeywell ask Brussels to listen to customers
	29.05.01:	GE to defend Honeywell buy
	09.06.01:	GE and Brussels draw bid battle line
	11.06.01:	GE offers more Honeywell concessions
	14.06.01:	GE closer to healing rift over Honeywell
	15.06.01:	Oceans apart on competition policy
	18.06.01:	Going home, alone
	18.06.01:	A target too juicy to be ignored
	18.06.01:	GE and Brussels
	18.06.01:	GE takeover of Honeywell 'may go ahead'
	19.06.01:	Dispute over GE takeover deepens
	20.06.01:	Hopes of saving GE deal fade in face of EU resolve
	20.06.01:	Honeywell fights to keep GE deal alive
	21.06.01:	Senator warns Brussels over GE/Honeywell
	22.06.01:	GE pledges to stick with Honeywell bid
	25.06.01:	EU experts examine GE-Honeywell deal
	26.06.01:	Doubts over GE-Honeywell block

Further information can be seen in these external links:
(long-term access cannot be guaranteed)

European Commission: Competition Directorate-General

European Commission: Press and Communication Service

Home page
	03.07.01:	The Commission prohibits GE's acquisition of Honeywell (IP/01/939)
	18.06.01:	Commissioner Monti dismisses criticism of GE/Honeywell merger review and rejects politicisation of the case (IP/01/855)
	14.06.01:	Statement on General Electric/Honeywell merger (IP/01/842)
	01.03.01:	Commission opens full investigation into the General Electric/Honeywell merger (IP/01/298)