The Economics and Politics of International Merger Enforcement: A Case Study of the GE/Honeywell Merger

• Published date: 01 April 2007
• Pages: 241-258
• DOI: https://doi.org/10.1016/S0573-8555(06)82009-2
• Date: 01 April 2007
• Author: Jay Pil Choi

CHAPTER 9

The Economics and Politics of

International Merger Enforcement:

A Case Study of the GE/Honeywell Merger

Jay Pil Choi

Department of Economics, Michigan State University, East Lansing, MI 48824

E-mail address: choijay@msu.edu

“If it appears that the European Commission is unfairly blocking mergers be-

tween US companies principally to protect the position of European competi-

tors, then the subcommittee will need to reexamine the open market the US has

maintained for those sorts of acquisitions.” Senator Jay Rockefeller IV (D-WV),

chairman of the US Senate Aviation Subcommittee.

“I deplore attempts to misinform the public and to trigger political interven-

tion. This is entirely out of place in an antitrust case and has no impact on the

Commission whatsoever. This is a matter of law and economics, not politics.”

European Competition Commissioner Mario Monti.

9.1. Introduction

As the globalization of the world economy entails the growing interdependence

among national economies, a nation’s competition policies are no longer con-

fined to domestic firms within its jurisdiction. With the prominence of multi-

national firms, what counts is not the nationalities of firms but the locus of the

effects. Antitrust authorities thus are empowered to take actions against foreign

firms if they affect competition in their jurisdictions.

The European Commission, for instance, can block or force changes to com-

pany mergers and takeovers, evenwhen they do not involve any European firms,

if they are deemed to adversely affect the competitive landscape in the Euro-

pean market. The mandate of the European Commission to regulate mergers

between non-European companies derives from the EC Merger Control Regu-

lation adopted in 1989, which requires that all companies, regardless of where

they are based, notify the Commission about planned mergers if their combined

worldwide annual sales exceed five billion euros and at least 250 million euros

CONTRIBUTIONS TO ECONOMIC ANALYSIS © 2007 ELSEVIER B.V.

VOLUME 282 ISSN: 0573-8555 ALL RIGHTS RESERVED

DOI: 10.1016/S0573-8555(06)82009-2

242 J.P.Choi

worth of their business is done among the 15 EU nations.1This means that any

US or non-European firms that have a significant presence in the European mar-

ket that exceeds the threshold above need to clear the Commission’s approval.

The same applies to the US antitrust authorities such as the Department of Jus-

tice and the Federal Trade Commission. They routinely take actions against

foreign firms if their actions harm competition and adversely affect consumers in

the US market.2As of 2001, The United Nations Conference on Trade and De-

velopment listed 82 countries that had competition authorities and the American

Bar Association identified 46 international merger notification requirements.3

The current situation naturally raises issues concerning the potential for inter-

governmental disagreements about the effects of antitrust actions.

This type of potential conflict finally materialized in a dramatic fashion. On

July 3, 2001, in one of its most high-profile antitrust decisions ever, the Euro-

pean Commission blocked the proposed merger (valued at $43 billion) between

General Electric (GE) and Honeywell despite intense lobbying by the Repub-

lican administration in the U.S.4Since it is the first case in which a proposed

merger between two U.S. companies that had been approved by Washington has

been blocked by European regulators, the decision has been closely scrutinized

and has become a focus for intensifying trade disputes between Europe and the

United States.5This chapter intends to analyze the political economy aspect of

international antitrust in light of the European Commission’s review of the pro-

posed merger between General Electric and Honeywell.

1The EC Merger Regulation (Council Regulation (EEC) No 4064/89 of 21 December 1989 on

the control of concentrations between undertakings) has been substantially amended. For the new

EC Merger Regulation of 20 January 2004, see http://europa.eu.int/comm/competition/mergers/

legislation/regulation/.

2One such example is the block of a merger between Ciba-Geigy and Sandoz, two Swiss pharma-

ceutical firms by FTC in 1997.

3See Leary (2001).

4The GE/Honeywell deal easily met the threshold above. When U.S. lawmakers ask what business

it is of the Europeans if two U.S. companies want to merge, part of the answer is that GE alone

employs about 85,000 people and collects about $25 billion in annual revenue in Europe.

5This incident of divergence in antitrust policy was, however, foreshadowed by the previous

merger case in the US between the Boeing Company and the McDonnell Douglas Corporation in

1997. As in the case of GE/Honeywell, this merger was approved by the Federal TradeCommission

in the U.S., but the European Commission recommended that the merger to be blocked.Even though

this case was eventually approved after Boeing consented to several demands that included elimi-

nation of exclusivity clauses in its contracts with three U.S. airlines, it prompted Thomas Boeder

(2000), Boeing’s council, to “suggest the potential for serious conflicts between U.S. and European

merger control regimes in the future,” which indeed materialized with the GE/Honeywellcase. The

direction of divergence is not one-way. For instance, Air Liquide/Air Product/BOC was approved

by the European Commission but blocked in the United States.