GE and Honeywell - A Merger Aborted*

Abstract:

The bid by General Electric to take over Honeywell International Inc. was set to become the biggest merger in industrial history, when the European Commission barred it from taking place. One of the biggest companies in the world, GE was attracted by Honeywell's aerospace businesses which fit in neatly with GE's own businesses in the area, thus creating remarkable synergies for both companies. The merger had been passed by the United States Department of Justice, with the recommendation that GE divest itself of Honeywell's military helicopter unit, to protect the US military. However, approval from the EC was not so easy to obtain.

After conducting a thorough investigation, the EC and its Competition Commissioner Mario Monti, determined that a merger between GE and Honeywell would create too powerful an entity and consequently, have adverse effects on the competitive position in the aerospace industry. The merger would give the two companies a very huge combined market share in the common markets in which they operated, along with providing them with the opportunity to bundle their complementary products in future. This would harm competitors as well as customers by creating a near monopoly situation.

The EC demanded that substantial chunks (amounting to almost $ 7 billion) be divested by the two companies, and restrictions be imposed on the operation of the highly profitable GE Capital Services arm. The demands were far more than GE was ready to concede, and the deal fell through. The GE-Honeywell merger case marked the first time that transatlantic regulatory authorities differed in their decision on a merger approval.

Issues: » To understand the impact of international relations and global business environment on corporate business decisions. » To examine transnational differences in approaches to businesses issues and how they influence business dynamics.

Questions for Discussion:

1. GE and Honeywell both had a history of acquisitions and were conglomerates by structure. In view of this, what would the future of a merger between the two companies have been? What were the benefits expected by both companies? What were the fallouts of the failure of the merger?
2. The EC rejected the merger on the grounds that it would have created too strong an entity in the aerospace market. Discuss the reasons the commission gave to suggest that the merged company would be able to influence competitors and the market adversely.
3. The GE-Honeywell merger gave rise to questions about the viability of seeking global approval for mergers. Discuss the role played by the international economic and political environment on business decisions. Do you consider the need to comply with international standards an advantage or disadvantage of globalization? Also account for regional differences in laws and how they affect companies.

Key words:
General Electric, Honeywell International Inc., merger, European Commission, GE, aerospace businesses, synergies, United States Department of Justice, military helicopter, US military, Competition Commissioner, Mario Monti, entity, competitive position, combined, market share, complementary products, monopoly situation, $ 7 billion, divested, GE Capital Services, transatlantic, regulatory authorities

*Note : This case is a simplified version of a longer case study, and is intended for learners for whom English is a foreign language. The longer version of this case study (BSTR085) is available at: http://www.icmrindia.org/casestudies/catalogue/Business%20Strategy2/BSTR085.htm