Making & Saving Deals 2005

GE/Honeywell Why the European Commission

said “No”

Andrea De Matteis

7 June 2005

Outline

• Introduction

– Merger Control in the World

– Merger Control in the EU

• GE/Honeywell – Background information on the deal

– Relevant markets and position of parties

– Commission’s concerns & legal issues

– Differences between the EU and US approach

Growth in merger control

• 1914 - first merger control law adopted by US Congress (Clayton Act)

• Today, more than 60 jurisdictions worldwide have merger control regimes

• Approx. 50 have compulsory filing requirements

Mandatory regime

Voluntary regime

No merger control

14 merger control regimes in the EU

Member States’ control regimes

European Commission

• Merger Task Force (“MTF”)

• Part of DG Competition

• Commissioner Monti

• Full Commission

• Advisory Committee ofMember States

• Reviews all concentrationswith a “Community-wide dimension”

GE/Honeywell

• Takeover involving two gigantic US companies:

– The biggest ever industrial merger ($42 billion)

– Combined worldwide turnover: $160 billion

– in EU, GE $20 billion (and 85,000 employees) and Honeywell $5 billion

• Deal concluded in 3 days without consulting antitrust counsel

The facts

The European Approach

Affected markets

Avionics products (aircraft control, flying conditions, navigation, communication)

Non avionics products (brakes, wheels, landing gear, aircraft lighting)

Engine Starters

Small marine gas turbines

Engines for corporate aircraft

Product Market

Engines for large commercial aircraft

Engines for large regional aircraft

Leading position(40%-50%)

Leading position(50%-60%)

Leading position

Leading position

Leading position

Honeywell

0

Substantial presence(30%-40%)

Small share(10%-20%)

0

0

0

Active

GE

Dominant position(60%-70%)

Dominant position(52%-65%)

The challengers and their theories

GE Capital will impose exclusivity for Honeywell avionics and non-avionics

GECAS will only buy planes that have Honeywell avionics thereby foreclosing competitors

Lower-priced bundles of GE engines and Honeywell avionics and non-avionics will foreclose competitors

Will there be more GE/Honeywell cases in the future?

• There will be more attention paid to EC merger control by non-EU merging companies

• GE/Honeywell is a rare exception to the rule of systematic convergent outcomes

• Merger control necessarily involves a prospective analysis of inherently uncertain future effects

• “Reasonable minds may reach different conclusions on the application of the same law to the same body of evidence." (Tim Muris, FTC Chairman)

Conclusions