A Merger Is Sunk Off European Shores

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General Electric Co. Chairman Jack Welch

Mega-mergers suddenly look so 1990's.

For the first time in 11 years and 400 deals, the European Union's trustbusters have slammed the gates shut on a merger of two American companies approved by American regulators, vetoing a proposed $43 billion purchase of Honeywell by General Electric by a unanimous 20-0 vote.

The fallout means the end of one executive career — Honeywell CEO Michael Bonsignore may well be jettisoned by the company's board — and an dubious final chapter of another, the Corporate American Hero Jack Welch, who was planning to retire after the deal went through.

If things get out of hand, it may also mean a trade war between the U.S. and Europe to replace the banana-themed skirmish the two regions just settled. U.S. senators Phil Gramm (R-Tx.), Ernest Hollings (D-S.C.) and John D. Rockefeller (D-W.Va.) — the latter two new chairmen of influential Senate committees — accused EU regulators of protectionism and warned of a possible "chilling effect" on trans-Atlantic relations.

President Bush also expressed concern. His own antitrust regulators at the Justice Department let the G.E.-Honeywell marriage — a very neatly matched one-stop-shopping combination of jetliner engines and jetliner avionics that scared G.E.'s European competitors — slide through with only minor alterations. Then head euro-trustbuster Mario Monti and his commission had to go and mess it all up for reasons that struck American backers of American business interests (like Rockefeller and Bush) as a little too, well, nationalistic.

EU Competition Commissioner Monti saw it as a straight question of competition. "The merger between GE and Honeywell, as it was notified, would have severely reduced competition in the aerospace industry and resulted ultimately in higher prices for customers, particularly airlines," he said.

A philosophical disconnect

That word — "ultimately." Welcome to the philosophical disconnect between the U.S. watchdogs and their counterparts across the pond. Any U.S.-Europe trade war over mergers like these will have its roots in the aftermath of another war, namely WWII. After surviving Germany, European officials were constitutionally afraid of dominant single companies largely because of their potential warmaking uses.

In later decades, permissiveness was extended to state-supported, multi-national conglomerates like Airbus, on the theory that such entities would not only be able to better compete with titans of U.S. industry, but promote the internal integration of Europe — back to that war thing. Now, with the continent well down the integrationist road, euro-zone trustbusters are back to the original plan: More companies, of approximately equal size, is the way to keep economic power nice and decentralized.

Why trustbust? American regulators do it for one overarching reason: the consumer. The U.S., of course, has had a generally better experience with monoliths overall (the American warmaking machine, after all, saved freedom in Europe from the German one), and it's generally been willing to give a big corporation (and the natural tides of the marketplace) the benefit of the doubt until those prices start rising.

Europe is a bit more prevention-minded. The efficiencies of the GE-Honeywell deal would have brought prices down in the near-term; even Monti acknowledged that. But down the road, the EU worried that those lower prices would eventually starve the competition — especially the European competition — out of business. End result: one dominant company, monopolist's prices.

And lots of Europeans out of work — the other benefit of nurturing the competitiveness of many companies within an industry is that those many companies won't be making cost-cutting layoffs and breaking any more strands of the cherished European social safety net than is absolutely necessary.

The bottom line

What all that means for the U.S., from Washington to Wall Street, is that in globalized antitrust regulation the higher bar is the only bar. A merger of Connecticut-based GE and New Jersey-based Honeywell qualified for Euro-scrutiny because the combined revenues of the two companies exceed the EU's circuit-breakers of $4.3 billion in global sales and $215 million in EU sales.

GE-Honeywell qualified by a country mile, and so will a lot of other U.S. mergers. E.U. and U.S. antitrust officials work closely together, and for most of the '90s, if American companies could get a deal past their own government, they could get it past the EU. (The last big merger spiked by the EU, WorldCom-Sprint, was denied by the U.S. a day later.) Now, Bush's hands may be off the gates, but Monti's are still on. Which suddenly makes Europe a very imposing gatekeeper.

That attitude could be bad for business in Europe if the continent is seen as protectionist by outside companies; it could be good for business everywhere if the European theory of consolidation, competition and the greater good turns out to be the smart call. But now that the EU has made clear its intention to set its own pace for global mergers, the immediate fallout will be that the next time Wall Street sees a potentially tricky merger coming along, it's rather likely to sneer and something nasty about the French.

After all, if Jack Welch can't get it done, why even try?