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General Electric Co.’s acquisition of Honeywell International Inc. is expected to win antitrust clearance, but the review could take much longer than the four months predicted by GE Chairman John F. Welch. Welch, speaking to analysts and reporters Monday, said there is no overlap between the two conglomerates and that he expects the deal to close in February. “From any factual basis, this is the cleanest deal that you will ever see,” he said. Welch noted that both companies make and service small airplane engines. But GE is only involved in the market for regional jet engines while Honeywell focuses on business jets. Because the specifications for these two engine types are very different, the two companies are not competing for the same customers. “They are different customers, different markets,” Welch said. “They are not even close.” Antitrust experts were more skeptical, saying the two companies are active in dozens of markets. Even if they are not direct competitors, the threat of each invading the other’s turf may deter either from raising prices, they said. “I don’t think it would go through that quickly because there are bound to be a wide range of markets that need to be examined and that takes time,” said Albert Foer, president of the American Antitrust Institute, a nonpartisan group that advocates for competition policies. “This is a huge deal and is very important to the structure of American industries. This will take longer than they are suggesting.” William Kovacic, an antitrust professor at George Washington University’s law school, said regulators are swamped with deals. “There is not a lot of unused capacity in the agencies to throw massive amounts of resources at this problem instantaneously,” he said. The only way to close the deal so quickly is for the companies and the agency handling the deal to quickly agree on problematic markets, he said. Then General Electric would have to respond with compelling solutions the regulators can adopt without much tinkering, he said. “It is almost always a rule of thumb that things are more complicated than you think, especially when the transaction unfolds in the spur of the moment,” Kovacic said. “The parties tend to generically overestimate how benignly the enforcement agencies will examine the same facts that the companies believe will exonerate them.” Before negotiations can start, the U.S. Federal Trade Commission and the Department of Justice must decide which agency will review the transaction. Officials at both agencies said no decision has been made. Resolving this quandary may not be easy. The Justice Department reviewed Honeywell’s merger with AlliedSignal. That means they are more knowledgeable about Honeywell, which could expedite the review. The FTC, however, has an expertise in the aircraft industry and typically reviews all aircraft-related transactions, such as Boeing Co.’s acquisition of McDonnell-Douglas Corp. Because the aircraft engine manufacturing and service businesses are likely to receive much of the attention, the deal could belong to the FTC. Deciding this question alone could take a few weeks. If the two agencies cannot agree, the deal will go to the Department of Justice because the FTC received the America Online Inc.-Time Warner Inc. transaction, the last one where both agencies asserted jurisdiction. Kovacic predicted the deal would go to the Justice Department because of AlliedSignal. The Europeans could also wreak havoc with the timetable. The European Commission scrutinized the Allied Signal deal and may want to review the GE transaction just as carefully. Even with the strict EC deadlines for merger reviews, the process could go beyond February. Accounting issues could also complicate the deal. In the conference call, Welch and Honeywell Chairman Michael R. Bonsignore said the companies are unsure whether they will proceed with Honeywell’s earlier plans to sell a $1 billion friction materials business and a $1 billion automotive supply unit. Southfield, Mich.-based Questor Partners Fund II agreed in September to buy the friction materials business. Terms were not disclosed. In August, Honeywell said it had hired Salomon Smith Barney Inc. to find a buyer for its Consumer Products Group, which makes Prestone antifreeze and similar items. No buyer has been announced. Both sales could be problematic because the companies intend to account for the deal as a pooling of interest. Under the pooling rules, companies are generally barred from making significant assets sales in the months before a deal. Robert Willens, a tax and accounting specialist at Lehman Brothers Inc. in New York, said he expects the assets sales to proceed as scheduled. He noted that the Securities and Exchange Commission typically permits sales that were contemplated prior to the merger announcement, which clearly seems to be the case in this deal. “The timing is incrementing,” Willens said. “But it really wasn’t done in contemplation of the pooling. That is the way you usually approach it and usually you will win.” Copyright (c)2000 TDD, LLC. All rights reserved.

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