EU blocks GE/Honeywell deal

Mario Monti: Merger could have seen rivals pushed from some markets

The European Commission has blocked the $45bn deal between US firms General Electric (GE) and Honeywell.

Although US competition authorities had given their of approval to the deal, the commission was worried that the integration of Honeywell's avionics and GE's strength in jet engines could lead to dominance of the market.

The commission took a fundamentally different approach to... its counterparts in the US, Canada and nearly a dozen other jurisdictions

General Electric statement

"Such integration, unless corrected, could have resulted in the foreclosure of the market for competitors," Mario Monti, European competition commissioner, told the BBC.

The move represented the first time that a proposed merger between two US companies has been squashed solely by European regulators, and attracted an angry response from General Electric.

"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," the firm said.

The block comes nine months after the merger was first proposed.

US backlash?

The debate as to whether to allow the deal attracted huge interest and sparked fears of a falling-out between the European Union and the US.

The EU faced criticism and the threat of retaliatory action from senior US politicians.

And US president George W Bush voiced his concern that he wanted the companies to be fairly treated by the EU.

But Mr Monti said the occasional transatlantic divergence of views was inevitable, and harmless.

"[The GE-Honeywell decision] was very unusual. We have a success story of co-ordination in examination of mergers," he said.

He denied that European protectionism had played a part in Tuesday's decision, stating that the merger had raised concerns among airlines and GE and Honeywell rivals on both sides of the Atlantic.

Airbus, the European aerospace consortium, was not a plaintiff, he said.

'Profound regret'

General Electric, which during negotiations last month accused the EC of making "extraordinary demands", said it was "deeply disappointed" by Tuesday's decision.

"We strongly disagree with the commission's conclusions about the competitive effects of GE's acquisition of Honeywell," the firm said in a statement.

"The facts just don't support these assertions. We believe this acquisition would have clearly benefited consumers in terms of quality, service and prices."

GE chairman and chief executive Jack Welch said: "'I feel profound regret at this setback for the thousands of GE and Honeywell employees who worked so hard for the last eight months in an attempt to make this deal happen."

GE and Honeywell twice last month offered the commission concessions in last ditch efforts to get the deal approved.

Life after the merger

Honeywell chairman Michael Bonsignore is expected to resign because of the decision, according to press reports.

Michael Bonsignore: resignation rumours

GE chairman Jack Welch postponed his retirement to continue working on the deal but is now expected to depart swiftly.

The fate of the two companies has differed greatly during the nine month waiting period.

GE remains a healthy company with or without Honeywell.

It announced a 16% rise in full year profits in April, and its share price has tended to rise on speculation that the deal will be blocked.

"GE remains confident that 2001, with or without Honeywell, will be another record year of double digit operating earnings growth," said the firm in a statement.

Honeywell, however, reported a dramatic slump in annual profits of 92% in April and was forced to cut 6,500 jobs.

And the firm partially blamed the proposed merger for its demise, saying that it had delayed selling underperforming business units that it had previously planned to ditch.

On Wall Street, GE shares closed $0.80 lower at $49.40.

Honeywell ended $0.99 higher at $35.20, with investors said to be warming to the prospect of Mr Bonsignore's resignation.