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The BBC's Patrick O'Connell in New York
"This is the Europeans telling the biggest company in the United States what to do"
 real 56k

Thursday, 14 June, 2001, 21:28 GMT 22:28 UK
GE-Honeywell deal nears collapse
Honeywell/General Electric merger graphic
It is looking increasingly likely that the proposed $42bn deal between Honeywell and General Electric will be blocked by the European Commission.


GE is not optimistic that its proposal will meet with European regulatory approval

General Electric
"The proposed divestitures are far short of the Commission's demands, which seek billions more than the proposed GE divestitures. GE is not optimistic that its proposal will meet with European regulatory approval," said GE in a statement.

"I 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," said GE's Chairman Jack Welch.

Personal meetings

Mr Welch met with EU competition commissioner Mario Monti twice on Wednesday morning and again on Thursday in a last ditch attempt to push the deal through and was prepared to sell off Honeywell's aerospace business worth $2.2bn.

But GE admits that these concessions fall far short of the EU's demands and deems it unlikely that the deal will now go ahead.

On Thursday Mr Monti expressed "regret" at the companies' position, but said his office would continue to review the deal "unless the merger notification is formally withdrawn".

The EU has until 12 July to decide whether to block the deal.

A source close to the deal said the GE team left Brussels on Thursday and reportedly considered the deal "effectively dead".

General Electric is the world's largest company and if the deal had gone ahead, it would have been the largest industrial takeover on record.

Plan B for a bright future

Honeywell has said that it has a "comprehensive contingency plan" if the merger with GE fails.

And in spite of the global economic slowdown, GE is confident about the year ahead.

"GE remains confident that 2001, with or without Honeywell, will be another record year of double digit operating earnings growth."

And while in Europe this week, Mr. Immelt, GE's President and Chairman-elect, said, "We're thrilled with the performance of GE's 85,000 employees in Europe and we're very optimistic about GE's future here."

US-EU row brews

The deal has also become a point of conflict between the United States and the European Union.

Mario Monti, EU competition commissioner
Mario Monti: the man GE must persuade
A White House official has confirmed that President George W. Bush may raise the GE-Honeywell issue at his meeting with EU leaders in Sweden on Thursday.

But the EU has already rejected the intervention of the White House in its decision making process.

"The European regulator's demands exceeded anything I or our European advisors imagined, and differed sharply from antitrust counterparts in the U.S. and Canada," noted Mr Welch.

President Bush to speak out?

The deal, agreed by Honeywell and General Electric in October, was approved a month ago by US anti-trust investigators on condition that the merged group sell a helicopter engine business.

But the European Commission holds much more deep-seated reservations about the merger, fearing that the combined group would hold too high a share of the world's aerospace markets.


This sort of political pressure never impresses the Commission

European Commission spokeswoman
During his first visit to Europe, President George W. Bush weighed in on the deal, saying that America "has a strong interest in fair treatment" of GE and Honeywell.

And US trade representative Robert Zoellick, who is accompanying President Bush on the trip, expressed hope that any differences between the EU and US competition watchdogs could be worked out effectively.

Mr Zoellick called the relationship between the US and the EU competition authorities "an example, frankly, of a partnership that's been pretty effective."

But a commission spokeswoman has already said that the EU would reject political intervention from the US.

"This sort of political pressure never impresses the commission," she said.

Late on Thursday, there was no sign of intervention by President Bush.

Conflicting fortunes

Both Honeywell and General Electric are among the elite of firms listed on the world's most-watched stock market index, the Dow Jones Industrial Average index.

But while General Electric, the world's largest jet engine maker, and owner of brands such as Hotpoint, has continued to prosper despite the time taken to win takeover approval, Honeywell has found the delays harder to cope with.

Honeywell, manufacturer of products ranging from security systems to aircraft electrics, in April revealed profits down 91%, and announced it was to cut 6,500 jobs.

The firm blamed its decision to hold onto even underperforming businesses while the takeover process continued for much of the profits slide.

Honeywell shares fell $5.16, or 12.21%, to $37.10 at the close of trading, while GE rose $1.01 to $48.86.

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See also:

06 Jun 01 | Business
GE seeks deal with EU regulators
23 Oct 00 | Business
General Electric buys Honeywell
20 Apr 01 | Business
Honeywell slashes 6,500 jobs
12 Apr 01 | Business
General Electric profits up 16%
27 Nov 00 | Business
New chief for world's biggest firm
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