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News > Deals
GE rejects Honeywell offer
June 29, 2001: 4:50 p.m. ET

GE's Welch says Honeywell offer to drop price 'makes no sense'
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NEW YORK (CNNfn) - General Electric Co. rejected Honeywell International Inc.'s offer Friday to lop nearly $2 billion off its $42 billion price tag, casting an apparent fatal blow to the mega-merger.

Honeywell's new offer in response to demands by the European Commission "makes no sense for our share owners," GE [entity:stockQuote || ticker:GE || liveQuote:True]] Chairman Jack Welch said in a letter.

"What the Commission is seeking cuts the heart out of the strategic rationale of our deal, " Welch said.

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graphicCNNfn's Allan Chernoff takes a look at GE rejecting Honeywell's proposal.
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The latest setback means Euro regulators are set to block the deal July 3 in Strasbourg, France, unless GE can somehow salvage the negotiations. The EC can delay a decision until July 11 in Brussels, Belgium, as a final determination is not due until July 12. 

News of the rejection caused Honeywell shares, which had rallied the last three day, to drop more than 8 percent in afternoon trading Friday while GE gained more than 2 percent.

An attempt to salvage

Honeywell (HON: down $3.30 to $34.90, Research, Estimates) offered Friday to cut the merger's price tag to induce GE to make the concessions necessary to win European antitrust regulators' approval of the deal. The Honeywell proposal would reduce the value of the deal by about $1.8 billion to $39.9 billion, based on Thursday's closing price for GE.

Honeywell CEO Michael Bonsignore offered to accept 1.01 shares of GE for each of its shares, rather than the 1.055 shares in the original acquisition agreement, to get the deal back on track.

Under the new offer, Honeywell shareholders would get $49.39 a share, rather than the $51.56 in the original agreement. But even the lower ratio would yield about a 23 percent premium for Honeywell shareholders, based on Thursday's closing prices.

Discussions with the EC revealed that the GE-Honeywell bids would fall short, Welch said. GE had revised its "final" offer and had agreed to sell a near 20 percent stake in its airline leasing arm in a last ditch attempt to gain Euro regulatory approval. The antitrust regulators had expressed concern that GE could use its aircraft leasing arm to help it compete unfairly against other companies.

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However, the EC rejected the revised offer Thursday.

"Unfortunately, as the conversation the two of us had yesterday with Commissioner Monti so clearly demonstrates, the GE-Honeywell proposals of both June 14 and June 27 are not acceptable and fall far short of what the Commission seeks," Welch said Friday.

But GE is not withdrawing its proposal with the EC, a spokeswoman told CNNfn.com.

"We are not terminating the deal's proposal or notification but have no plans to make any further proposal to the EC," she said.

When asked if GE would continue negotiations with the EC, the spokeswoman said only that G.E. conglomerate would make no further offers.

"We are clearly disappointed with GE's decision to reject our proposed solution," Honeywell spokesman Tom Crane said.

A fatal blow?

Welch's letter Friday dismissing the Honeywell offer appears to be the final blow to the merger. GE has not formally withdrawn its proposal and now all hope for the $42 billion merger now lies with the European Commission that will vote next week.

"The EU will meet on July 3 and that's when the nail gets finalized in the coffin," a source familiar with the situation said. "I don't see how this can get turned around."

"The indications are that the deal will be rejected," added analyst Steve O'Neil, of J.J.B. Hillard, W.L. Lyons.

By rejecting Honeywell's offer, Welch made it clear that he would not go much further to get the merger approved.

Both sides appear to be digging in. "I can't say with 100 percent certainty that the deal is not going to happen but it is highly unlikely," O'Neil said.

The failed merger will be most notable for its affect on GE CEO Jack Welch's career. He lured Honeywell away from rival suitor United Technologies Corp. in what would have been the biggest acquisition of GE's 108-year history.

"If it had gone through this would have been a huge cap to a career that hasn't been seen since J.P. Morgan," one analyst, who declined to speak on the record, said.

GE will likely survive the setback and in the future negotiate more wisely with European regulators, analysts said. Honeywell, which showed its good faith effort to negotiate with regulators, will likely find another suitor.

But on a global landscape, the failed merger will be groundbreaking, signifying the differences in North American policy toward mergers versus the Europeans. The United States and Canada both approved the GE-Honeywell pact which was all set for completion until European regulators blocked it.

Regulators in the U.S. view competition as positive for the overall market while European regulators are more sensitive to competitive issues.

"Europe looks at it through the ability to dominate business through uncompetitive practices," the analyst said. "You can't have completely different sets by which to regulate. It doesn't make any sense." graphic

  RELATED STORIES

EC rejects revised GE bid - June 28, 2001

GE-EC talks back on - June 27, 2001

Euro regulators to make decision July 3 - June 26, 2001

Honeywell commits to GE merger - June 18, 2001

GE, Honeywell say EU unlikely to accept merger proposal - June 14, 2001

European regulators target Honeywell aerospace - June 12, 2001

  RELATED SITES

The European Commission

Honeywell International

GE


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.