GE & Honeywell: A Failed Merger

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Case Details:

Case Code : BSTR085
Case Length : 14 Pages
Period : 1976 - 2003
Organization : GE, Honeywell International Inc, European Commission
Pub Date : 2004
Teaching Note : Available
Countries : USA
Industry : Aviation

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"The GE/Honeywell is a rare case where the transatlantic competition authorities have disagreed. I am determined to strengthen our bilateral co-operation in the future to try and reduce this risk further."

- Mario Monti, Competition Commissioner of the European Commission in 2001.¹

"If this deal had come along in the middle of my career, it would have been another swing and miss. Coming at the very end, after I had postponed my retirement, the loss of GE's biggest deal seemed to loom larger."

- Jack Welch, CEO of GE, in 2001.²

EC Dashes Merger Hopes

On July 3, 2001, the European Commission (EC)³ officially dashed all hopes of a merger between General Electric (GE) and Honeywell International Inc (Honeywell), when it blocked the move, on the recommendation of EC's competition commissioner, Mario Monti (Monti). The merger, had it come through, would have been the biggest merger in industrial history, valued at over $40 billion.

It would also have increased the size of GE (already one of the biggest companies in the world) by nearly one-third. The events surrounding the merger were a matter of great interest and speculation in business circles. Analysts also followed the developments closely, realizing their potential to transform the dynamics of the affected industries. The prospect of a merger was made even more exciting by the fact that GE and Honeywell were both influential companies, listed on the Dow Jones Industrial Average.⁴ (GE and Honeywell had approximately $155 billion in combined revenues in 2000.) It was also critical to the fortunes of both the companies, with significant synergies expected to result from the merger.

The merger's importance was underlined by the fact that Jack Welch (Welch), the long standing and most successful CEO of GE, who had overseen over 1000 mergers during his stint, had actually postponed his retirement to the end of 2001 (he was to retire in 2000) to see the merger through.

This was the first time that the EC had blocked a merger that had been passed by the US authorities. The proposed merger had been approved earlier in 2001 by anti-trust regulators in the US, with only minor modifications. Therefore, the EC's refusal to pass it came as a shock to all involved. Commenting on the issue, Welch said "This shows you are never too old to get surprised."⁵ Honeywell, which had just sometime earlier faced a few other takeover bids, notably from United Technologies (UTC),⁶ also began considering the option of continuing alone. "We have a comprehensive contingency plan in place if we must move forward as an independent company," said Honeywell's chairman and CEO, Michael R. Bonsignore (Bonsignore).⁷

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1] www.eurunion.org

2] In his book, "Straight from the Gut", published after his retirement in late 2001.

3] The European Commission is an integral part of the European Union (EU). It performs three main functions: it is the source of all policy initiatives for the EU, it acts as the guardian to all the EU treaties and ensures their effective and uniform implementation and, it acts as the executive body of the EU, responsible for implementing and managing policy. It exercises considerable power in policies relating to competition, agriculture and trade.

4] The Dow Jones Industrial Average comprises of 30 blue-chip US stocks. It is considered to be the world's best stock indicator.

5] "GE-Honeywell Merger Officially Dead", www.controldesign.com, July 06, 2001.

6] UTC is an American electronics and engineering group. It owns such important names as Carrier, Otis, Pratt & Whitney, and Sikorsky, through which it makes air-conditioning equipment, elevators, aircraft engines and helicopters, respectively.

7] "GE-Honeywell merger all but called off", Houston Chronicle, June 15, 2001.