The attempted merger between General Electric and Honeywell A case study of transatlantic conflict March 2005
Jeremy Grant (Graduate Institute of International Studies, Geneva) and Professor Damien J. Neven (Graduate Institute of International Studies, Geneva)
Financial support from the TMR program on « Competition Policy in international markets » is gratefully acknowledged. The authors would also like to thank all those participants in GE/Honeywell who generously gave of their time to discuss the case. (Acknowledgements to be approved). Thanks are also due to Sarah Nash at JP Morgan in New York. Helpful comments were also received from Dr. Thomas Kirchmaier at the LSE and Selman Ansari at Bates, Wells in London.
The thwarted merger of General Electric and Honeywell stands out as, so far, the only merger between US companies to be derailed solely by the European anti-trust authorities, while being cleared by the US Department of Justice (DoJ) and 11 other jurisdictions. In this paper, the authors examine the European Commission’s decision, and the theories underlying it and compare the Commission’s approach with that followed by the DoJ. They observe that the Commission and the DoJ had a different assessment of broadly similar facts, and attempt to understand the source of the divergence. The authors find that (i) the horizontal effects identified by the European Commission rely on a particular perspective of market definition which is debatable (and leaves some questions unanswered). (ii) The anti-competitive effects in the bundling and archimedean leveraging theories are not sufficiently robust so that they could be presumed. Accordingly, their likelihood should be supported by strong evidence but the evidence presented by the Commission was far from compelling. (iii) The deal may have involved significant efficiencies that were overlooked. These observations raise the suspicion that the Commission’s decision may have been affected by bureaucratic capture, such that civil servants did not follow the mandate that had been assigned to them. We find that the procedure enforced at the time was vulnerable to capture and that the Commission had an incorrect perception of the standard of review that the Court would apply to its decision in the context of an appeal. The accountability to which the Commission felt subject to was thus biased downwards and enlarged the scope for capture. In addition some (admittedly casual) evidence regarding the actual unfolding of the procedure, as well as subsequent reforms of process and procedure undertaken by the Commission, would support the view that significant problems arose in this area.
“In the macho world of merger regulation ….. authorities strive to win a tough reputation” 1.
Introduction: Project Storm As General Electric’s CEO Jack Welch strode onto the floor of the New York Stock Exchange on October 19th 2000, little did he know that he was about to become embroiled in a series of events that would lead to him bidding for Honeywell, a rival industrial conglomerate, and place him in the eye of a transatlantic storm over competition policy. 2 The deal, codenamed Project Storm, would have been the largest industrial merger in history. Instead, it became infamous as the first, and so far only, merger between US companies to be derailed solely by the European anti-trust authorities, while being cleared by the US D epartment of Justice (DoJ) and 11 other jurisdictions. This paper will critically examine the European Commission’s decision, and the theories underlying it and compare the Commission’s approach with that followed by the DoJ. We observe that the Commission and the DoJ had a different assessment of broadly similar facts, and attempt to understand the source of the divergence. In particular, we examine how process and procedure differed between the United States and the European Union, to determine what extent these factors influenced the...
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