Court: EU was right to block GE’s purchase of Honeywell | VailDaily.com
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Court: EU was right to block GE’s purchase of Honeywell

LUXEMBOURG – An EU court ruled Wednesday that the European Commission was right to block General Electric’s proposed purchase of Honeywell in 2001, although it criticized regulators for how they made the decision – keeping the bar high for any future ban.The EU had blocked General Electric’s $46 billion purchase of Honeywell International Inc. after it had been cleared by U.S. regulators.Antitrust lawyers said the decision meant the EU would continue along the more cautious path it has charted in recent years – staying close to the U.S. view that conglomerate deals are rarely an antitrust problem – and use more economic evidence to back up its claims.The Court of First Instance – the EU’s second-highest court – endorsed the Commission’s view that the deal would have given the combined company too much power in the market for jet engines for large regional aircraft, engines for corporate jets and the market for small marine gas turbines. In its ruling, the court confirmed that GE was the dominant player in the jet-engine market and the acquisition of Honeywell would have strengthened that position.The court said the Commission made “manifest errors of assessment” in relying on the theory of conglomerate effects to claim that the purchase would create a company that could squeeze suppliers and control prices. EU judges criticized the theory earlier this year when it said the Commission should not have blocked a merger of packaging giants Tetra and Sidel.EU regulators concluded that the deal would tie dominant positions in avionics and jet engines together with “complementary products” such as GE’s financing arm, and said the deal would force competitors out of the market.Honeywell and GE – who have no plans to resurrect the deal – claimed the 2001 decision was error-ridden and offered insufficient evidence to support charges that they could shut out rivals by bundling related products together. The court backed some of their claims, but came to the same conclusion as the Commission in saying the merger could harm the market.EU spokesman Jonathan Todd said the Commission noted the court’s criticism and was already reviewing its policy on conglomerate effects, taking the Tetra ruling into account.”In such complex transactions, it is crucial for the merging parties to come up with adequate remedies for all the competition concerns,” he said.In July, the Commission cleared Procter & Gamble Co.’s $57 billion takeover of Gillette Co. – which it investigated for conglomerate effects – after P&G promised to sell off its SpinBrush battery-operated toothbrush business that competed directly with Gillette’s Oral B brand.Allen & Overy partner Alistair Lindsay said the EU now faces a higher threshold to block a conglomerate deal, making it easier for such mergers – which are rare – to win antitrust clearance.”If that case (P&G-Gillette) had fallen to be decided at the same time as GE-Honeywell, they probably would have had a lot more hassle then they ended up with,” he said.Lindsay said the court’s decision confirmed the Commission’s recent push for reform.”As it is, I think it keeps them reasonably in line with the U.S. because the U.S. agencies are quite cautious about conglomerate charges,” he said.GE counsel Hendrik Bourgeois said the company did not bring the appeal to overturn the prohibition decision, but to get clarity and guidance on the theory of conglomerate effects.”It seems that the court agrees with our positions … that the Commission was wrong to predict that the transaction would have had a conglomerate effect based on the financial strength of General Electric, the vertical integration that the transaction would have caused and from bundling,” he said.Honeywell said the ruling showed the Commission’s decision was “flawed and incorrect,” and the ruling was important for global companies who planned to make new acquisitions.The EU has taken a far more cautious line on mergers in recent years after the courts overturned three of its decisions to block mergers between travel companies AirTours and First Choice, Tetra and Sidel and electrical equipment makers Schneider and Legrand.Since 2001, it has blocked only one merger – a tie-up between Portugal’s energy and gas suppliers – and now takes more time to explain its concerns to companies, giving them the chance to put forward a solution that eliminates any possibility of antitrust problems.Catharine Arrowood, a partner at the U.S. law firm Parker Poe, said the problems the Commission had tried to address in the airline market still exist, and that GE had since strengthened its position as a maker and a fixer of large jet engines.”Airlines have little choice when it comes to equipping commercial jetliners with engines or avionics – these are oligopolistic markets,” she said. “There is a serious risk that this will hurt airlines eventually.”The ruling was closely watched because it could also influence an appeal expected next year against the Commission’s decision to fine Microsoft Corp. a record 497 million euros ($613 million) in 2004.Both cases involve the application of leveraging, or using strength in one or more markets to muscle into new ones or lock out competitors by packaging related products together.Microsoft was found by the EU to be leveraging its dominant Windows operating system into emerging markets for multimedia and server software.Vail, Colorado


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