GE verdict will hurt business, says top lawyer

Date: 05/07/01

By Peter Chapman

LEGAL experts are scoffing at Mario Monti's claim that his decision to block General Electric's €48 billion bid for Honeywell was a "rare case" of divergence by "well-meaning competition authorities".

Instead they say the decision, after five months of torrid negotiations between GE chief Jack Welch and the competition commissioner, highlights glaring differences in the tools EU and US merger chiefs have at their disposal - differences which could plunge merger law into chaos and threaten restructuring of global industries.

Monti said he feared that GE/Honeywell would have been able to use its dominant position to 'bundle' packages of jet engine and avionics products to squeeze out rivals.

The US Justice Department was aware of these pitfalls, but allowed the merger on the grounds that consumers would benefit. But lawyers familiar with GE believe the EU took a tougher stance because - unlike the US - it cannot re-open investigations and take further action if a merged company subsequently 'misbehaves'.

Peter Alexiadis, a lawyer at the Brussels office of US firm Squire, Sanders & Dempsey, said: "The Americans get a second bite of the cherry - they can always break a company up that becomes too overwhelming."

He said the deal could have still gone ahead if the EU and US regulators had agreed to lever these powers if the need arose. Under such an agreement, the US would have promised to step in if the company was guilty of anti-competitive practices.

The aftermath of this week's decision, he said, is likely to be a slowdown of merger activity in response to depressed stock markets and an "absolutely desperate need" for restructuring. "The big problem from industrial economics is that this throws a spanner in the works of any major reorganisation in a complex industry. One man's synergy is another man's foreclosure."

Monti said dissenting views between the EU and US "although regrettable... can never be excluded", but he was "determined to strengthen bilateral cooperation". US assistant attorney general for anti-trust issues Charles James admitted that the Commission's decision reflected a "significant point of divergence" and pointed to the need "for consultation to move towards greater convergence".

Meanwhile, Honeywell's chairman Michael Bonsignore was the first victim of the failed marriage with GE. The firm has announced that he will be replaced by Lawrence Bossidy, former chief executive of Allied Signal, the company which merged with Honeywell in 1999. GE said it may appeal to the European Court of First Instance, but this would be more to set the record straight than to resurrect the deal.

Legal experts are scoffing at Mario Monti's claim that his decision to block General Electric's €48 billion bid for Honeywell was a 'rare case' of divergence by 'well-meaning competition authorities'.