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EC set against GE deal
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June 26, 2001: 5:22 p.m. ET
Final decision to reject GE-Honeywell purchase, barring new concessions
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NEW YORK (CNNfn) - European regulators' final decision likely will go against General Electric Co.'s $41 billion takeover of Honeywell International Inc. unless GE comes up with new proposals, a source told CNNfn.
The European Commission is expected to sort out its final review this week and make its recommendation July 3 in Strasbourg, France. The EC still can delay until July 11 in Brussels as a final determination is not due until July 12, the source said.
At the meeting Monday of the European Union's Committee of Experts, three countries expressed their regret that GE did not offer remedies to make the $41 billion merger go through, a source said. The Committee advises the EU.
All but one of the 15 EU member countries backed the EC draft to block the merger, the source said. The vote is the latest blow the GE's attempted takeover of Honeywell.
"The door isn't closed, but GE/Honeywell has to come up with remedies that will clearly address the Commissioner's concerns," the source said.
The Financial Times reported late Tuesday that GE and Honeywell had resumed talks to try to tailor another deal for the EC to review.
A GE spokesman said it was unfair to say the company's had "resumed" talks. "Our senior management is very committed to this deal, and it is not uncommon practice for them to speak often, daily in fact," GE's Gary Sheffer said.
Honeywell continued to maintain its commitment to the takeover and declined further comment. Honeywell (HON: up $0.60 to $36.20, Research, Estimates), in a filing with the Securities and Exchange Commission, also revealed that its Pittway Corp. unit is selling all or part of its stake in Cylink Corp. (CYLK: up $0.07 to $0.85, Research, Estimates), a software maker.
Shares of Honeywell, which plummeted on news of the EC's action, rebounded slightly Tuesday, gaining nearly two percent while GE (GE: down $1.46 to $48.79, Research, Estimates) dropped almost three percent.
The block
GE agreed to buy Morristown, N.J.-based Honeywell, a maker of aircraft engines and products for industrial heating, last October. GE Chairman Jack Welch agreed to delay his retirement, originally planned for April, until the end of the year to see the Honeywell deal through.
The merger has received regulatory approval in the United States and Canada.
The combined firm of GE-Honeywell would conduct a certain percentage of its business in Europe, which places it under scrutiny of European regulators. The EC had expressed concern that GE could use its aircraft leasing arm to help it compete unfairly against other companies.
Fairfield, Conn.-based GE submitted its final proposal June 14 of concessions it would make to receive EC approval. The Commission wanted the U.S.-based industrial conglomerate either to spin off GECAS or sell shares in the unit. Instead, GE proposed to set up a separate audit and management structure for GECAS and sell $2.2 billion worth of Honeywell's aerospace products business.
The EC then issued a draft decision recommending that the EU reject the purchase.
Welch expressed his surprise at the EC's blocking the deal. He met with European Competition Commissioner Mario Monti twice during the negotiations and GE even contacted the Bush administration.
Even U.S. senators have weighed in, claiming that a European decision to block the deal could have a "chilling effect" on aerospace cooperation between the EC and U.S., Senator Jay Rockefeller IV (D-WV), chairman of the Senate Aviation Subcommittee, said.
However, a source close to the companies said the merger isn't dead yet. "No one knows at this point [the status]," the source said. "This isn't over until July 12." 
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