GE & Honeywell: A Failed Merger

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Case Details:			Price:
Case Code	:	BSTR085	Electronic Format: Rs. 400; Courier (within India):Rs. 25 Extra Themes Mergers Acquisition and Takeovers
Case Length	:	14 Pages
Period	:	1976 - 2003
Organization	:	GE, Honeywell International Inc, European Commission
Pub Date	:	2004
Teaching Note	:	Available
Countries	:	USA
Industry	:	Airlines

Abstract:

The bid by General Electric to take over Honeywell International Inc. was set to become the biggest merger in industrial history, when the European Commission barred it from taking place. One of the biggest companies in the world, GE was attracted by Honeywell's aerospace businesses which fit in neatly with GE's own businesses in the area, thus creating remarkable synergies for both companies. The merger had been passed by the United States Department of Justice, with the recommendation that GE divest itself of Honeywell's military helicopter unit, to protect the US military. However, approval from the EC was not so easy to obtain.

After conducting a thorough investigation, the EC and its Competition Commissioner Mario Monti, determined that a merger between GE and Honeywell would create too powerful an entity and consequently, have adverse effects on the competitive position in the aerospace industry. The merger would give the two companies a very huge combined market share in the common markets in which they operated, along with providing them with the opportunity to bundle their complementary products in future. This would harm competitors as well as customers by creating a near monopoly situation.

The EC demanded that substantial chunks (amounting to almost $ 7 billion) be divested by the two companies, and restrictions be imposed on the operation of the highly profitable GE Capital Services arm. The demands were far more than GE was ready to concede, and the deal fell through. The GE-Honeywell merger case marked the first time that transatlantic regulatory authorities differed in their decision on a merger approval.

Issues:

» To understand the impact of international relations and global business environment on corporate business decisions

» To examine transnational differences in approaches to businesses issues and how they influence business dynamics

Keywords:

General Electric, Honeywell International Inc., merger, European Commission, GE, aerospace businesses, synergies, United States Department of Justice, military helicopter, US military, Competition Commissioner, Mario Monti, entity, competitive position, combined, market share, complementary products, monopoly situation, $ 7 billion, divested, GE Capital Services, transatlantic, regulatory authorities

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