GRAHAM WARWICK / WASHINGTON DC
After GE merger block, non-performing units face sale and EC seeks to mend fences with US competition authorities
Honeywell is expected to restructure around its core aerospace business as it attempts to continue as an independent company in the wake of European rejection of its planned merger with General Electric.
Honeywell chairman and chief executive Michael Bonsignore resigned after the European Commission's 3 July decision to bar the $41 billion merger on the grounds it would have severely reduced competition in aerospace. He has been replaced by Larry Bossidy, who engineered the $12 billion merger of Allied Signal and Honeywell in 1999, then stepped down in favour of Bonsignore.
Bossidy, who has become chairman and chief executive under a one-year contract, says his goal is to get Honeywell back on its feet and keep it independent, but adds that his mandate from the board is to "fix the company or sell it". He is expected to sell Honeywell's non-performing businesses, including several automotive units.
The EC blocked the merger after concluding it "would create or strengthen dominant positions in several markets and that the remedies proposed by GE were insufficient to resolve the competition concerns".
The Commission found the merger would have created dominant positions in avionics, systems and business jet engines and strengthened GE's dominant positions in engines for large commercial aircraft and regional jets.
"The dominance would have been created or strengthened as a result of horizontal overlaps in some markets as well as through the extension of GE financial power and vertical integration to Honeywell activities," the EC said in a statement. The financial strength of leasing arm GE Capital Aviation Services was of particular concern to the EC.
"We strongly disagree with the Commission's conclusions about the competitive effects of GE's acquisition of Honeywell and its statements about the market position and influence of GE Aircraft Engines and GE Capital Aviation Services. The facts just don't support those assertions," said GE.
Announcing Bonsignore's resignation and Bossidy's return, Honeywell said it would take a $575-625 million charge against second-quarter earnings to cover merger-related expenses and other costs. The company is now forecasting full-year revenues of $24-24.5 billion.
Honeywell has been performing poorly since merging with AlliedSignal, and has been distracted from tackling lingering integration issues since GE made its take-over offer last October. Insiders say Bossidy will move quickly to implement business changes identified by GE. Honeywell had already cut its workforce and costs in anticipation of the merger.
EC competition commissioner Mario Monti, meanwhile, rejected criticism that the EC listened too closely to GE's competitors, principally Rolls-Royce and United Technologies, in deciding to block the merger. "European merger control is not about protecting competitors but about ensuring that markets remain sufficiently competitive in the long run," the EC said.
Monti also played down the significance of the different conclusions reached by European and US competition authorities, the US Department of Justice having approved the merger with minor divestitures. Describing GE/Honeywell as a "rare case" where transatlantic authorities interpret the facts and forecast the effects differently, Monti says he intends to strengthen bilateral co-operation to reduce the risk of disagreement.
Source: Flight International
