GE/Honeywell: The U.S. Merger that Europe Stopped—A Story of the Politics of Convergence

GE/Honeywell: The U.S. Merger that Europe Stopped—A Story of the Politics of Convergence

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“One chilly day in late February [2001], John F. Welch Jr. flew into Brussels on a vital mission: General Electric Co.'s chairman and chief executive had come on his corporate jet to urge the European Union's top antitrust regulator to give GE's bid for Honeywell International Inc. a speedy blessing [as the American authorities had done].” Mr. Welch was disappointed. The European Commission enjoined the merger, which would have been the largest industrial merger in the world's history, combining two American giants, General Electric Company, of jet engine fame, and Honeywell, with avionics expertise. American officials were disappointed also. Treasury Secretary Paul O'Neil called the European prohibition “off the wall” and described the European Commission as "the closest thing you can find to an autocratic organization that can successfully impose their will on things that one would think are outside their scope of attention.” Senator Ernest Hollings, Chairman of the Senate Commerce Committee, accused the European Commission of “an apparent double standard by swiftly approving mergers involving European companies and holding up those of US groups.” He said: “EU disapproval gives credence to those who suspect that the EU is using its merger review process as a tool to protect and promote European industry at the expense of its US competitors.” U.S. antitrust authorities were also among the outraged. They gave the European authorities “an unprecedented and extraordinarily direct public scolding” for mistaking an efficient merger for an anticompetitive one. Later, they would take credit for causing the EC law to look more American. Was the European prohibition against this largest-ever, pan-world merger really so extraordinary? What is the place of GE/Honeywell in the story of merger law? In the story of conglomerate mergers with leveraging effects that shift market share to powerful firms? What is its place in the puzzle of governance in the new world order in which law is national, transactions are international, more than a few jurisdictions claim the right to regulate the same transaction, and dominant players nudge other nations' laws to converge with theirs? GE/Honeywell is predominantly a story about sovereignty and the political dance of convergence. Nesting within this picture are nuts and bolts of conglomerate merger analysis, and a small cast of characters that, in retrospect, seemed programmed to bring on a clash of cultures, to stake out claims of “right law” and “right economics,” and then to return to the congenial mode of cooperation and business as usual. The antitrust story of GE/Honeywell begins with GE's Jack Welch setting his sights on Honeywell. It proceeds to the U.S. antitrust clearance of the deal; to the European prohibition; to internal reform and economic modernization within the European Commission's Competition Directorate, and eventually to the European appellate court's judgment affirming the Commission's prohibition on narrow horizontal grounds, while disclaiming any duty of deference to the United States. GE/Honeywell is a story of six years in the life of convergence. To set the stage, I give a short background of the not-always-parallel development of U.S. and EC merger law, and especially the law governing major firms' uses of leverage and other strategic practices such as bundling to shift market share to themselves. I then recount the evolution of the case. Finally, I comment on the case's implications for the law of leveraging and bundling by dominant firms, and I explore the politics of antitrust interdependence in a globalized world.

Source Publication

Antitrust Stories

Source Editors/Authors

Eleanor M. Fox, Daniel A. Crane

Publication Date

2007

GE/Honeywell: The U.S. Merger that Europe Stopped—A Story of the Politics of Convergence

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