Honeywell chief quits

All smiles: Bonsignore and Welch before the EU veto

The chief executive and chairman of US aircraft electronics giant Honeywell, Michael Bonsignore, has quit - hours after European regulators vetoed the company's $42bn merger with General Electric (GE).

It is a divergence. It is not one right decision and one wrong decision

EU competition commissioner Mario Monti

Honeywell said former chairman Lawrence Bossidy would replace Mr Bonsignore with immediate effect.

The EU blocked the deal because of competition fears - but the decision has provoked a furious reaction in the United States, igniting fears of a trade war with Europe.

It is the first time a proposed merger between two US companies has been squashed solely by European regulators.

GE chairman and chief executive Jack Welch has not ruled out an appeal.

"Well-meaning"

"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," GE said in a statement.

Meanwhile, EU competition commissioner Mario Monti has attempted to heal a potential rift with the US by calling for greater co-operation between the regulators.

He told the Financial Times that the GE/Honeywell decision had been a "rare case" of "well-meaning competition authorities coming to different opinions about the impact of a deal on the global market.

"It is a divergence. It is not one right decision and one wrong decision."

Although US competition authorities had given their 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.

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

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

Life after the merger

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

The idea is to stay independent now, to get the company back up on its feet

Honeywell chairman Lawrence Bossidy

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 ahead of the 4 July holiday $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.

Mr Bossidy, who has signed on with a one-year commitment, said he intended to keep Honeywell independent, despite analysts' expectations that GE rivals would step in to bid for the company.

Mr Bossidy said: "The idea is to stay independent now, to get the company back up on its feet, to get the people reengaged and obviously at some point in the future the company may reconsider it again," he said, regarding other merger possibilities.

"But it's not the intention of the board to have any considerations right now."