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What was once a battle of wills between American corporate titan Jack Welch and European antitrust czar Mario Monti has devolved into a struggle over legal principles. But those principles are so important that when General Electric Co. and Honeywell International Inc. lock horns again with the European Commission next week, competition experts will be watching just as intently as they were three years ago. The two sides are scheduled to appear before a Luxembourg appeals court considering the Commission’s 2001 veto of the aborted $45 billion GE-Honeywell merger. Antitrust lawyers remain fascinated by the proceedings even though one of the protagonists — Welch — has retired and the other — Monti — is a lame duck. “It’s an important case not just because the names are big but because the issues are big,” said Howard Rosenblatt, a partner at Howrey Simon Arnold & White representing Cedar Rapids, Iowa-based avionics maker Rockwell Collins Inc., which opposed GE’s proposed takeover as a third-party complainant. His fellow Brussels-based partner, Trevor Soames, will be arguing on the side of the Commission’s decision at hearings before the European Court of First Instance on May 25 and 27. Aircraft engine maker Rolls-Royce plc is the other company arguing in support of the veto. Though it’s unlikely GE will try to revive its long-dead deal, the case could affect the future of the avionics industry. Competition lawyers worldwide representing all industrial sectors will also be looking to the court to provide much-needed clarity on the controversial legal theory regulators used to block GE-Honeywell. It used the same theories to block Tetra Laval International SA’s attempted takeover of French equipment maker Sidel SA. In both cases, regulators justified the prohibition amid concerns about “bundling,” also called conglomerate effects, where one company is accused of leveraging its dominance in one market to lock in business for a related one and foreclose competitors. In GE-Honeywell, regulators were concerned that GE could leverage its dominance in its financing unit to squeeze out other avionics makers. This dominance, regulators alleged, would have resulted from some of the horizontal overlaps of the two companies as well as the vertical integration of GE’s engine-making abilities and Honeywell’s avionics and nonavionics products. The so-called “collective dominance theory” prevailed in the U.S. in the 1960s, but regulators abandoned it in the 1970s when economic evidence failed to provide support for stopping these deals. The theory has more support in the EU and gained additional support in Brussels in October 2002, when the Court of First Instance overturned the Commission’s Tetra-Laval veto on grounds of insufficient evidence but did not question the legal theory used by regulators. (The Commission’s appeal to the EU’s highest court is pending.) “Now we’ve got to put more flesh on the bones of Tetra,” said Rosenblatt, currently relocating from Howrey Simon’s Washington office to Brussels. He and others predict the GE-Honeywell case could have broad implications for all types of vertical mergers that raise concerns about foreclosing rivals, especially since the EU’s new merger regime, which took effect May 1, and guidelines on horizontal mergers offer nothing of the sort. “This case raised important issues both in terms of the viability of the Commission’s theory … and the quality of the evidence the Commission is required to lay out to support its conclusions,” said Charles Stark, a partner at Wilmer Cutler Pickering and former head of the foreign commerce section at the U.S. Department of Justice’s antitrust division, who is not involved in the case. When the Commission prohibited GE-Honeywell in July 2001, it was only the 15th merger veto since 1990. Nevertheless, Monti was portrayed by critics in the U.S. as a sinister deal killer, especially after Welch repeatedly came to Brussels to lobby Monti personally. The veto came months after U.S. antitrust authorities blessed the deal when GE agreed to divest its helicopter business. The deal became a poster child for differences between the U.S. and the EU on regulatory matters, and the decision continues to reverberate through the halls of the Commission’s competition department on Rue Joseph II in Brussels. The cases and the hearings of Fairfield, Conn.-based GE and Morristown, N.J.-based Honeywell will separate, with Honeywell arguing on May 25 and GE two days later. One reason for the bifurcation may be that Honeywell is only taking issue with one aspect of the Commission’s decision (the bundling issue), whereas GE takes issue with several other aspects. Amelia Torres, Commission spokeswoman, said the agency continues to defend all aspects of its decision in GE-Honeywell “very vigorously.” Though GE declined to discuss details of its appeal, its arguments are laid out in the confidential hearing report for the court obtained by The Deal. Among other things, GE accuses the Commission of failing to demonstrate a significant impediment to competition; wrongfully finding premerger dominance; failing to state reasons for its findings; making errors of law and assessment in relation to rejection of commitments offered; and committing procedural irregularities. Nicholas Green, a barrister at Brick Court Chambers, will argue on GE’s behalf. The company wants the court to annul the Commission’s decision and award costs, while the Commission is asking that the appeal be dismissed. Jane Golding, a partner at Crosby Renouf, said that even if the court finds the evidence is insufficient, the Commission would triumph if, as in Tetra Laval, the court upholds the bundling theory. “If the court comes to the conclusion that the economic principles used could be argued to be sound but the evidence is not sufficient, it would not be such a bad result for the Commission.” But for Monti, a former economics professor, it’s somewhat academic. A decision will likely not be ready until after Monti finishes his term in office this autumn, leaving his successor to deal with any repercussions. Copyright �2004 TDD, LLC. All rights reserved.

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