STEVE NICHOLS
The merger of US giants General Electric (GE) and Honeywell may fail, not because of US antitrust laws, but because of the European Commission's concern over competition and GE's leasing arm GE Capital Aviation Services (GECAS). The new company would have been a spiritual partnership between the descendants of US entrepreneurs Thomas Edison and Albert Butz. But a foreign commission, sitting more than 5,000km (3,125 miles) from Edison's original laboratory may have effectively blocked the deal. General Electric has offered to sell off large parts of Honeywell¹s aerospace business in an effort to gain European approval for the planned $41 billion merger. The divestitures include business and regional jet engines, air turbine starters and certain avionics and non-avionics products. GE has also offered to set up GE Capital Aviation Services (GECAS) as a separate "ring-fenced" entity to separate itself from Honeywell¹s avionics and non-avionics products. GECAS would remain 100% owned and managed by GE.
Deal
But a GE announcement on Thursday that it was "not optimistic" that concessions, including the sale of $2.2 billion worth of Honeywell's aerospace operations, would secure the EC's approval for the deal. The concessions would have resulted in a sell-off of more than 65% of Honeywell's aerospace business. Jack Welch, GE chairman and chief executive, says the EC's terms are "far beyond" the point at which he is willing to complete the transaction. A company announcement issued on Thursday says its "proposed divestitures fall far short of the European Commission's demands, which seek billions more than the proposed GE divestitures." "This shows that you are never too old to get surprised. In this case, the European regulators' demands exceeded anything I or our European advisors imagined, and differed sharply from antitrust counterparts in the US and Canada." The deal had been given the go-ahead in the US, conditional on concessions surrounding its helicopter engine business. But Europe has proved more problematic with the EU Commission in Brussels recently hearing presentations from Thales, Rockwell Collins, Rolls-Royce, United Technologies and Lufthansa.
Proposal
GE had until midnight GMT on Thursday to submit its final proposal. The EC will continue to review the deal until 12 July when the regulators' competitive review process of the proposed acquisition ends. There is always the possibility of an EC about-turn, but speculation grows that GE's pessimism indicates the deal will fail and is not a carefully orchestrated PR exercise to help persuade competition commissioner Mario Monti that a block on the merger would be inappropriate. The national European competition authorities meet with Monti on 25 June to discuss the merger. A final decision is due by midnight on 3 July and the process must end by 12 July whatever the end result. Until this latest hurdle the merger must have seemed like a severe case of déjá vu for Honeywell. Two years ago the company was facing a merger with AlliedSignal. The resultant company is now leaner after aggressive restructuring reduced annual expenses by approximately $600 million, strengthened its balance sheet and reduced its worldwide headcount by 10%, although its profits were down significantly.
Source: Flight Daily News
