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GE-Honeywell merger appears doomed after firms split on EU concessions
( 2001-06-30 10:57 ) (7 )

The blockbuster GE-Honeywell merger appeared dead in the water after the two companies publicly split Friday over concessions to be made to gain approval of European regulators.

Honeywell made an unusual appeal to General Electric early Friday to make additional concessions to the European Commission -- even offering to cut the acquisition price -- but GE quickly rejected the proposal.

With the two industrial conglomerates apparently deadlocked over how to proceed, the European Commission was poised to officially block the merger as early as Monday.

The extraordinary public plea by Honeywell suggested it was desperately seeking to salvage the merger, which EU regulators have been opposing because of concerns the merged company would be too dominant in aerospace activities.

Honeywell said it offered to drop its bid price in the deal to 1.01 Honeywell shares for each GE Honeywell share, down from a prior ratio of 1.055 Honeywell shares.

The offer would cut the acquisition price by about US$1.5 billion, making the deal worth some US$40 billion at current market prices.

Honeywell said the offer would be made if GE were to make additional divestitures of assets to satisfy concerns of the European Commission.

Honeywell said the concessions it asked GE to make included the divestiture sought by the EU of US$2.2 billion in GE holdings, as well as the sale of a 19.9 percent stake in GE Capital Aviation Services (GECAS).

The strong market position of GECAS, GE's aircraft leasing unit, has been the European Commission's main concern. Critics of the merger say it could force buyers of aircraft to equip them with GE engines and Honeywell electronics.

GE had been initially been willing to sell off assets worth US$2.2 billion, but when it revised its proposal to sell a stake in GECAS, it reduced its proposed divestitures to 1.1 billion dollars.

Honeywell chairman and chief executive Michael Bonsignore, in an open letter to GE chairman Jack Welch, said that "I see no choice now but to return to the US$2.2 billion of divestitures" in a June 14 proposal.

He said the new offer had to be completed quickly -- within 24 hours -- to have any likelihood of getting EU approval.

"We must amend the merger agreement and announce any change in the exchange ratio no later than Saturday," Bonsignore said.

But Welch replied in his own public letter that the Honeywell proposal makes "no sense" for shareholders of both companies, posing the same difficulties as the proposals by EU Competition Commissioner Mario Monti.

"What the Commission is seeking cuts the heart out of the strategic rationale of our deal," Welch said.

"The new deal you propose, in response to the Commission, makes no sense for our share owners, for the same strategic reasons."

GE, the world's biggest conglomerate, with interests ranging from aerospace to finance and media, announced its plans to purchase Honeywell last October and unify the two companies' aerospace activities.

US officials have already given a green light the deal, leaving the EU as the last hurdle.

But the commission -- which enforces antitrust laws for the 15 EU member states -- is widely expected to announce that it is blocking the deal, after GE's refusal to make concessions demanded by Brussels.

Honeywell shares tumbled 8.64 percent to 34.90 while GE shares rose 0.27 percent to US$49 on the news.