GE/Honeywell Deal Underscores Trans-Atlantic Divide

Dec. 21, 2004

The U.S. and EU remain at odds on fundamental antitrust issues.

Unless executives at Fairfield, Conn.-based General Electric Co. or officials of the European Commission make 11th-hour concessions, GE's pending $40+ billion acquisition of Honeywell International Inc. could soon be an undone deal. But deal or no deal, U.S. manufacturers must expect, at least for the time being, that the Europeans will continue to closely review -- and possibly reject -- many of their plans for major mergers and acquisitions (M&A). The reason: Significant differences over what's competitively acceptable continue to divide the U.S. and the European Commission, the 15-nation European Union's (EU) executive branch of government. There is, for example, the marquee issue of "bundling," the selling of products and services as a single package. Unlike the U.S. Justice Dept., which conditionally blessed the GE/Honeywell deal several months ago, the Europeans seem to view the packaging of complementary products and sometimes such services as financing as a serious anti-competitive practice. Specifically, relates one leading European-based antitrust attorney, the European Commission fears that if a merged GE and Honeywell were to sell aircraft engines and aviation electronics as a single package, they'd put manufacturers that sell either of the products separately at price and other competitive disadvantages. The U.S. Justice Dept. views bundling quite differently -- at least it did in the GE/Honeywell deal. "The Justice Dept. implicitly concluded that the possibility that GE might attempt to tie engines to other products -- or to financing -- was remote, given its lack of market power," states Charles H. Critchlow, a New York-based antitrust partner at the international law firm of Coudert Brothers. In the GE/Honeywell case, the European Commission "staked out a very aggressive position" on bundling, he believes. "And whether that will continue to be the case -- or whether in this particular transaction they locked themselves in and will be little bit more moderate in the future -- is anyone's guess." The antitrust divide between the U.S. and the EU, however, is about more than product bundling. There is a fundamental transatlantic difference over whom antitrust laws should protect -- consumers or competitors. In the U.S., consumer benefit is the ultimate antitrust test for a merger or acquisition, while in Europe the focus is on preserving competitors, explains Alfred Marcus, chairperson of the Strategic Management & Organization Dept. at the University of Minnesota's Carlson School of Management. "In the United States, we have evolved to [the position that] bigness is not necessarily bad," he observes. The U.S. Justice Dept.'s antitrust division or the Federal Trade Commission "will approve of mergers which can produce further economies or efficiencies and enhance competition," states Critchlow, who has 25 years' experience in the antitrust field. "And they do so in the belief that such efficiencies will benefit consumers and force other competitors to become more efficient as well -- even if players in the market who cannot, or choose not to evolve -- may ultimately see their position reduced," he stresses. In contrast, claims Critchlow, the European Commission displays "a troubling concern" that companies not be allowed to significantly increase competitiveness through a merger if other firms might not follow their example and fall by the business wayside. The commission "evidently holds this concern even in situations where a merger would result in better product offerings, cheaper distribution, or more consumer alternatives," he says. "In an economic world, U.S. regulators have the much better approach," Critchlow believes. And he criticizes the European Commission's approach to the GE/Honeywell deal for denying consumers new products, better products, and service options "simply because of a fear" that other companies -- such as Britain's Rolls-Royce PLC or U.S.-based United Technologies Corp. -- might not choose to keep up. "Increasingly, mergers and acquisitions are driven by precisely the economic considerations the commission has squarely attacked," Critchlow says. If he's right, U.S. manufacturers who do a significant amount of business in Europe should count on close European Commission review of their future M&A deals. Continued antitrust differences generally between the U.S. and the EU "probably will put a little bit of a constraint on merger and acquisition activities," predicts the Carlson School's Marcus. But Marcus also expects the European Commission to be under a microscope "to make sure that they apply their doctrines uniformly." If the Europeans become "too openly political, they'll lose credibility in the world," he asserts. Indeed, whether or not the Europeans are playing politics -- applying principles of competition to other nations' companies that they would not apply to their own -- is still a matter of debate among antitrust experts. However, Marcus does not believe that either the U.S. or the EU wants to go to war over their antitrust differences. "Both sides might ultimately cooperate. . . there is so much that both sides might gain," he asserts. In fact, Mario Monti, the EU's commissioner for competitiveness, claimed at a June 26 Brussels conference that U.S. and EU antitrust differences of opinion during the past two years "have been very rare indeed." And "when the do occur," he said, "we must learn to manage them at the technical level and avoid that they escalate into political disputes."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.