Case Study Ge Honeywell Merger

GE-HONEYWELL MERGER
On October 22, 2000, GE and Honeywell entered into an agreement under which GE would acquire Honeywell’s entire share capital. GE is a diversified conglomerate and participates in a large variety of markets worldwide. The main industries it serves are: aircraft engines, transportation systems, industrial systems, power systems. Honeywell International is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control technologies for buildings, homes and industry, automotive products turbochargers, and specialty materials. Its aerospace division has a strong position in flight control systems, the combination of cockpit displays, computers and software that control

On July 3, 2001, the European Commission prohibited the proposed merger. Both GE and Honeywell launched separate appeals against this decision with the European Court of First Instance (CFI). In its judgement delivered on December 14, 2005, the CFI disagreed with the Commission regarding the treatment of the alleged vertical and conglomerate effects as most controversial aspects of the Commission’s decision. However, the CFI upheld the Commission’s prohibition decision on the basis of horizontal overlaps that would have strengthened GE’s dominant position in large regional jet engines and would have created a dominant position in corporate jet engines and small marine gas turbines. In this particular case, the European Commission did not evaluate the merging parties’ engine ‘families’ by their performance characteristics which make it suitable for a particular platform from the point of view of aircraft manufacturers: GE’s engines were far more powerful, heavier and more complex than Honeywell’s engines. While it seems that the US antitrust authority stopped its investigations at that ‘first level’, the EC investigation found an indirect ‘second level’ substitutability of end-use applications, i.e. competing large regional aircraft and mid-size corporate jet models powered by engines produced by GE and Honeywell.6 In the case of small marine gas turbines, the EC did not investigate the competition between different marine platforms, but defined a product market that span from weaker Honeywell’s to GE’s more powerful turbines. The results of the Commission’s analysis of horizontal effects may be summarized as follows. The EC found the strengthening of GE’s dominant position in the market of large regional jet engines based on a pre-merger market share of 40–50 % of the overall installed base and 60–70 % of aircraft