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The European Commission May 8 sent General Electric Co. and Honeywell International Inc. a formal statement of its antitrust concerns about their $42 billion merger and signaled that, while the U.S. Department of Justice had cleared the deal, Europe would maintain a strong focus on a different set of issues. European Competition Commissioner Mario Monti, speaking at a press conference in Brussels, Belgium, after the commission’s weekly meeting, said the agency was primarily worried that the deal would give the new group enough clout to pressure customers to buy a combination of products, a practice known as “bundling.” He said the agency, the European Union’s merger watchdog, isn’t primarily examining the “range effect,” or whether the merger might pose antitrust problems because two large product ranges are combined. In contrast, U.S. regulators, who approved the merger last week after imposing relatively light concessions, had been mostly concerned about the companies’ so-called horizontal overlaps. To receive approval from the Department of Justice, Honeywell agreed to divest its helicopter engine business and allow third-party maintenance and repair companies to service some of its aircraft. “We do not have any concern with regard to a merger which only extends the range of products of the merged entity,” Monti said. “We have concerns with regard to possible bundling, or tying, that could allow the new entity to extend its dominant position from one market to another.” Bundling would mean airlines having to buy both engines and avionics from the new company. Currently, they can buy engines from competitors such as Pratt & Whitney and Rolls Royce PLC and avionics from Europe’s Airbus Industrie and The Boeing Co. of Seattle. Under the deal, Fairfield, Conn.-based GE would buy Morristown, N.J.-based Honeywell, forming an entity with more than $20 billion in yearly aerospace sales. That would place GE as the third-largest U.S. aerospace group after Boeing and Lockheed Martin Corp. Monti, however, said product-bundling is only one potential anti-competitive effect of the merger in Europe. GE makes jet engines, while Honeywell makes avionics and non-avionics products. The combined products would make up a significant portion of the parts that go into building airplanes. Then there are GE’s related activities, GE Capital Aviation Services, which leases aircraft to airlines, and GE Capital, its financing arm, which the commission believes could further boost GE-Honeywell’s market strength, already significant. According to one source, the merged group would have no strong rival in Europe and would only face one if there were a merger of some five companies active in engines, avionics, non-avionics, leasing and finance. If the commission sees it this way, the regulators would probably not permit the deal to go through with so-called behavioral concessions — a pledge by a company to act in a certain manner. Rather, structural divestments — clear-cut asset sell-offs — would probably be demanded. The commission dislikes behavioral concessions because they are difficult to monitor and seemed to have rejected such a remedy in this case when it launched its in-depth inquiry March 1. The commission’s statement of objections is a formal presentation of the regulators’ antitrust concerns which the agency issues after it closes its in-depth investigation. The most likely behavioral concession would be a pledge to refrain from bundling products, and it is believed the companies informally suggested this as a concession in the EU’s preliminary investigation. Alternatively, the companies could offer to sell any of the five businesses areas being studied. But the question is whether such asset sales would undermine the logic of the deal. GE’s incoming CEO, Jeffrey Immelt, said recently that the company would not go through with the merger at any cost. In addition, the companies would need to present the right combination of divestments, if more than one asset sell-off is needed. Monti, speaking to reporters, dismissed suggestions that the commission is softening its position on the deal in the wake of the DOJ’s approval. He said his comments during a recent trip to the U.S., in which he said two prior meetings with GE’s outgoing CEO, Jack Welch, had been constructive, may have been misinterpreted. Monti said the U.S. and European Commission have collaborated. The commission will continue talks with the companies on possible concessions. GE and Honeywell will also get a chance to defend against the EU’s position in oral hearings in Brussels. Arguments are usually held three weeks after issuance of the statement of objections. The companies then must meet a June 12 deadline to submit final concessions, before the ultimate July 12 deadline by which the EU must rule. The commission can block mergers or demand changes when the companies’ combined global sales total �5 billion ($4.5 billion) and EU sales reach �250 million each, even if the companies are from outside the 15-nation EU. Copyright (c)2001 TDD, LLC. All rights reserved.

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