Case Study 2–8. GE’s Aborted Attempt to Merge with Honeywell
Many observers anticipated significant regulatory review because of the size of the transaction
and the increase in concentration it would create in the markets served by the two
firms. Nonetheless, most believed that, after making some concessions to regulatory
authorities, the transaction would be approved, due to its widely perceived benefits.
Although the pundits were indeed correct in noting that it would receive close scrutiny,
they were completely caught off guard by divergent approaches taken by the U.S. and
EU antitrust authorities. U.S regulators ruled that the merger should be approved because
of its potential benefits to customers. In marked contrast, EU regulators ruled against the
transaction based on its perceived negative impact on competitors.
Background
Honeywell’s avionics and engines unit would add significant strength to GE’s jet-engine
business. The deal would add about 10 cents to GE’s 2001 earnings and could eventually
result in $1.5 billion in annual cost savings. The purchase also would enable GE to
continue its shift away from manufacturing and into services, which already constituted
70 percent of its revenues in 2000 (Business Week, 2000b). The best fit is clearly in the
combination of the two firms’ aerospace businesses. Revenues from these two businesses
alone would total $22 billion, combining Honeywell’s strength in jet engines and cockpit
avionics with GE’s substantial business in larger jet engines. As the largest supplier in the
