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An EU appeals court on Wednesday upheld the European Commission’s 2001 veto of General Electric Co.’s aborted takeover of Honeywell International Inc. but criticized regulators for misjudging the merger’s effects on some markets. Specifically, the Luxembourg-based Court of First Instance approved the commission’s findings that the deal would thwart competition in the markets for jet engines for large regional aircraft, engines for corporate jets and the market for small marine gas turbines. However, the court said regulators erred in their analysis of the merger’s so-called conglomerate effects, such as the combination of GE’s engines with Honeywell’s avionics and nonavionics products. The commission had argued that this and other types of product bundling resulting from the combination would have created or strengthened a dominant position. For example, they maintained that GE could leverage its financing unit to squeeze out other avionics makers. The court held that while regulators failed to justify these aspects of its decision, the commission’s findings relating to the merger’s effects on the three distinct markets were sufficient to establish that its decision prohibiting the fusion was well founded. “The fact that dominant positions would have been created or strengthened on several specific product markets is sufficient” to justify the veto, the court said in a statement. Ahead of the decision, competition lawyers predicted that a win for the commission would be a major morale boost for antitrust regulators. It is also a win for former EU antitrust chief Mario Monti, who saw a trio of merger vetoes overturned in 2002 and who refused to bow to pressure from Washington and GE’s then-CEO Jack Welch on the case. The commission rejected the merger even after GE offered to dispose of Honeywell’s aerospace products with $2.2 billion in revenue and to sell a minority of GE’s leasing and financing unit to a private investor. In separate appeals that were joined, GE and Honeywell argued that the decision should be annulled and the commission pay their fees. Honeywell’s appeal was much narrower, taking issue only with the bundling theory regulators used to justify their veto. The veto came within months of U.S. antitrust authorities giving their blessing to the deal after GE agreed to divest its helicopter business. It was only the 15th time the commission, the EU’s executive arm, blocked a merger since it began vetting mergers in 1990. Both sides have two months to decide whether to file an appeal to the European Court of Justice, the EU’s highest court, but this is only possible on the grounds that the lower court committed a serious error. Copyright �2005 TDD, LLC. All rights reserved.

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