Hopeless GE Said Adieu to Honeywell

After months of wrangling between General Electric and the European Commission over GE's proposed acquisition of Honeywell, the regulators appear to have won, with GE telling Show News here yesterday that it no longer expects to consummate the $42 billion deal.

"We are planning our future without Honeywell," said Jeffrey Immelt, GE's president and chairman elect. "We are severely disappointed that we could not pull off the deal," added David Calhoun, president and CEO of GE Aircraft Engines.

GE hasn't withdrawn the proposal from the European Union's regulatory review, but Immelt held out no hope that regulators will change their minds.

"Our final offer is far short of what the commission has required," he said, adding that negotiations on GE's part have ceased for good. The commission is expected to issue its ruling by July 12.

President George W. Bush last week expressed dismay about the action by the EU. But GE isn't betting on a political bail-out. "We are so far apart that this is not a place we would use political pressure," Immelt said.

In negotiations GE had offered to sell about $2.2 billion worth of businesses and establish GE Capital Aviation Services as a separate entity within GE, with special oversight to address European concerns about bundling. The regulators wanted more. Immelt said GE was unwilling to give more. He said GECAS wasn't the only stumbling block, citing avionics and auxiliary power unit divestitures as other deal-killers. But GECAS was a major issue. GECAS head Henry Hubschman said one reason GE wasn't willing to spin-off the company was fear that a competitor may acquire it later.

So far GE and Honeywell have opted not to call off the deal, although that may happen. "It is not something we will do unilaterally," Immelt said.

GE attributes the derailment largely to the different approach European regulators take in evaluating a deal, noting that the acquisition was approved by the U.S., Canada, and 13 other regulators.

The U.S. also required some divestiture, but on a much smaller scale, costing about $200 million. European regulators listen more to competitors' concerns, while others worry more about the impact of consolidation on customers, Immelt said. There was no dearth of competitors-both in Europe and the U.S.-who took advantage of that situation and made their dismay known.

In hindsight, GE officials still insist they wouldn't have changed their approach. "We believe that this deal was pro-customer (and) reflected all the anti-trust theories we had seen up to that point," Immelt said.

What now? The company certainly won't stand still, according to Immelt. "We have the opportunity to make investments for growth," he said-without specifying where the company may be looking.

GE also is going to try to make amends with Airbus, which Calhoun said "was very supportive in that process." But questions put to Airbus about the proposed GE/Honeywell deal were extensive, putting a large burden on the aircraft maker, he notes.

GE officials won't say how it'll react if another company now acquires Honeywell. A potential candidate would be United Technologies, which was well on its way to striking its own deal with Honeywell before GE outbid it.