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EC probes avionics merger
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August 30, 1999: 10:06 a.m. ET
EU fears AlliedSignal-Honeywell tie-up could squelch competition
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LONDON (CNNfn) - The European Commission Monday launched a probe into the proposed $14.9 billion merger of U.S. aviation-systems companies AlliedSignal and Honeywell, citing concerns that a combined company may exert unfair dominance in the markets for avionics products.
In a brief statement Monday, the EC said it had decided to open an "in-depth" probe of the planned merger. The statement said an initial investigation had shown that the tie-up "may lead to the creation or strengthening of a dominant position on one or more markets for avionics products."
But the EC said this conclusion is subject to further investigation. A final decision is expected within the next four months.
In a joint statement, AlliedSignal and Honeywell said the review is a "common part" of the EC's review process, and that they will work with the commission to complete the merger by the end of the year.
EC spokesman Stefan Rating told CNNfn.com that proposals submitted by the U.S. firms to help meet regulators' concerns got a "skeptical" reception from other companies in the avionics industry.
Asked whether he expects the merger eventually to pass regulatory muster, Rating said it wasn't his place to say.
"At the moment we have to talk about the facts," he said.
The EC originally had been due to rule on the proposed merger Aug. 17, but extended the deadline by two weeks amid concerns over the impact of the combination on avionics competition.
Questions about overlap
While the EC technically has the power to block mergers it deems harmful to competition, this power is used only as a last resort. Typically, would-be merger partners agree to dispose of assets or other conditions in exchange for being granted a regulatory green light to proceed with their tie-up.
Since AlliedSignal (ALD), based in Morristown, N.J., announced plans to buy Minneapolis-based Honeywell (HON) in June, analysts have speculated that the companies' overlap in areas such as flight safety systems and cockpit display could raise regulatory eyebrows.
In addition to the EC probe, regulators at the U.S. Justice Department also recently asked both firms to provide more information on their tie-up.
The EC's investigation comes at a time when the pan-European watchdog has been playing an increasingly visible role in efforts to ensure free and fair competition in a range of industries from telecommunications to banking to aerospace.
In 1997, the EC approved French subsidies to help Britain's Sextant and Smith Industries build a flight management system for a new family of Airbus planes.
That decision, apparently aimed at reducing Airbus's reliance on Honeywell, prompted a challenge by the latter to the European Court of Justice in Luxembourg, which still is pending.
A merger between the two U.S. firms would spawn an avionics power combining AlliedSignal's flight safety systems and aerospace products with Honeywell's leading space and aviation businesses.
In June, Michael Bonsignore, the chief executive and chairman of Honeywell -- who would be CEO of the new company -- told CNN the merger would give the new entity the "financial firepower" it needs to compete in the global avionics industry. The combined firm would have an estimated market capitalization of around $45 billion. 
-- from staff and wire reports
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