European regulators have given the cold shoulder to the acquisition by General Electric Co. of Honeywell Inc., whose aftermarket brands include Prestone, Fram and Autolite.
The European Commission has decided to prohibit the proposed following an investigation into the markets for aircraft engines, avionics and other aircraft components and systems.
In adopting this decision, the commission concluded that the merger would create or strengthen dominant positions on several markets and that the remedies proposed by GE were insufficient to resolve the competition concerns resulting from the proposed acquisition of Honeywell.
“The merger between GE and Honeywell, as it was notified, would have severely reduced competition in the aerospace industry and resulted ultimately in higher prices for customers, particularly airlines. However, there were ways of eliminating these concerns and allowing the merger to proceed,” European competition commissioner Mario Monti said, adding: “I regret that the companies were not able to agree on a solution that would have met the commission’s competition concerns.”
The failure to be able to meet these requirements hinged on the fact that the divestiture of the business units required by the commission for approval would result in the disposal of much of the value that GE sought from the Honeywell acquisition the first place.
Monti also said, in relation to the co-operation with the U.S. antitrust authorities: “The European Commission and the U.S. Department of Justice have worked in close co-operation during this investigation. It is unfortunate that, in the end, we reached different conclusions, but each authority has to perform its own assessment and the risk of dissenting views, although regrettable, can never be totally excluded. This does not mean that one authority is doing a technical analysis and the other pursuing a political goal, as some might pretend, but simply that we might interpret facts differently and forecast the effects of an operation in different ways . 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.”
Background on the decision
from the European Commission
GE and Honeywell notified their merger agreement for regulatory clearance in Europe on 5 February this year, according to the commission.
On March 1, the commission started an in-depth investigation which demonstrated that GE alone already had a dominant position in the markets for jet engines for large commercial and large regional aircraft. Its strong market position combined with its financial strength and vertical integration into aircraft leasing were among the factors that led to the finding of GE’s dominance in these markets. The investigation also showed that Honeywell is the leading supplier of avionics and non-avionics products, as well as of engines for corporate jets and of engine starters (i.e., a key input in the manufacturing of engines).
The combination of the two companies’ activities would have resulted in the creation of dominant positions in the markets for the supply of avionics, non-avionics and corporate jet engines, as well as to the strengthening of GE’s existing dominant positions in jet engines for large commercial and large 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’s financial power and vertical integration to Honeywell activities and of the combination of their respective complementary products. Such integration would enable the merged entity to leverage the respective market power of the two companies into the products of one another. This would have the effect of foreclosing competitors, thereby eliminating competition in these markets, ultimately affecting adversely product quality, service and consumers’ prices.
On 14 June, GE proposed a number of undertakings intended to address these concerns which were considered insufficient to remove the competition problems identified by the commission.
On 28 June, well beyond the deadline for the submission of undertakings, GE proposed a new set of remedies. This new package could not be accepted either, because it did not resolve the problems identified in a sufficiently clear way at such a very late stage in the procedure.
Given the nature of the competition concerns resulting from the proposed merger and the fact that the GE was unable to propose undertakings that would have removed all competition concerns, the commission had no choice but prohibit the merger, said the commission.
Background on EU merger control
This is only the 15th time the commission has blocked a merger since September 1990, when it became the one-stop shop for mergers and acquisitions requiring regulatory approval in the European Economic Area the 15 European Union states plus Norway, Iceland and Liechtenstein. And it is only the second time it prohibits a merger involving only American firms.
The commission has authority to review all mergers, acquisitions and takeover bids and other deals that can be defined as a ‘concentration’, involving companies with a combined turnover worldwide in excess of $5.0 billion U.S. and European sales of at least $250 million for at least two of the companies concerned.
The key test for assessing mergers in Europe is whether they create or strengthen a dominant position. European merger control is not about protecting competitors but about ensuring that markets remain sufficiently competitive in the long run so that consumers benefit from sufficient choice, innovation and competitive prices.