Sunday, July 08, 2001

GE's Welch risked big in merger effort

By Paul Geitner and John Christoffersen
The Associated Press

        Three critical meetings over two days ended with a handshake between General Electric Co.'s chief executive, Jack Welch, and Europe's top business regulator, Mario Monti.

        “I'm going to go home and write my book, and I'm going to put out a press release,” Mr. Welch told Mr. Monti when they parted June 14, according to sources familiar with the talks in Brussels, Belgium.

        The pair had failed to reach agreement over GE's proposed $41 billion purchase of Honeywell International, which the European Union wanted whittled down.

        Mr. Monti thought Mr. Welch would make a graceful exit, withdrawing the proposal in keeping with custom when companies can't come to terms with regulators. Instead, Mr. Welch issued a blistering statement hours later, accusing Europe of making “extraordinary demands.”

        Mr. Welch, who postponed his retirement to see the merger through, can now focus on his book, for which he received a $7.1 million advance. But he'll be hard-pressed to find a happy ending for the chapter on what was supposed to be the capstone of his career heading the world's most profitable corporation.

        Mr. Welch was widely credited with transforming GE — best known for making light bulbs and appliances — into a Fairfield, Conn.-based empire that includes television network NBC and also produces power plant parts and aircraft engines, with 313,000 workers around the globe.

        The merger received conditional approval in the United States in May, after the Justice Depart ment required Honeywell to divest its helicopter-engine business and authorize new third-party maintenance and repair services for some of its aircraft engines.

        The EU regulators were particularly worried that GE-Honeywell could “bundle” GE jet engines with Honeywell electronics and financing from GE Capital Aviation Services (GECAS) — then sell them to Boeing or Airbus at discounts that competitors such as Britain's Rolls Royce PLC and France's Thales SA couldn't match.

        At his first meeting with Mr. Monti, Mr. Welch offered to divest $2.2 billion worth of Honeywell's aviation electronics business, but the offer didn't satisfy the commission, said a person close to the negotiations.

        When the meetings ended, Mr. Welch said in his press release that the two sides never came close to reaching an agreement.

        “In this case, the European regulators' demands exceeded anything I or our European advisers imagined,” he said, adding that the demands show “you are never too old to get surprised.”

        Honeywell chairman and chief executive Michael R. Bonsignore came up with a surprise proposal June 29, offering to reduce the takeover price by more than $1 billion. GE's part would include the $2.1 billion in divestitures and a partial spinoff of GECAS.

        Mr. Welch dismissed the offer hours later.

        “What the Commission is seeking cuts the heart out of the strategic rationale of our deal,” he wrote back. “The new deal you propose, in response to the Commission, makes no sense for our share owners, for the same strategic reasons.”

        In the end, the Europeans' vote Tuesday to block the deal was unanimous.

Honeywell's new-old boss
faces a rebuilding year
By Linda A. Johnson
The Associated Press

               TRENTON, N.J. — Fifteen months after retiring from the company where he capped his business career with a $15 billion merger, Lawrence A. Bossidy was back last week at the helm of Honeywell International Inc.

        Upset by the aerospace giant's stumbling performance and lingering problems from the December 1999 merger, Mr. Bossidy has told Wall Street he knows the company better than anyone and will turn it around.

        “I hate to see it in the condition it is right now,” he said during a conference call last week, after chairman and chief executive Michael Bonsignore resigned.

        Mr. Bonsignore's resignation and Mr. Bossidy's return came Tuesday, the day the European Union blocked the company's proposed $41 billion acquisition by General Electric Co.

        Investors welcomed the change of command, bidding the stock up Thursday. Despite initial investor enthusiasm, analysts say Mr. Bossidy, 66, has much to do to restore investor confidence amid a faltering economy.

        Mr. Bossidy started his career at General Electric in 1957, after earning a degree in economics from Colgate University.

        He rose to become top lieutenant of GE chairman and chief executive Jack Welch, who would cut the deal with Mr. Bonsignore to buy Honeywell.

        Mr. Bossidy left GE in 1991 to head his own company: AlliedSignal, a high-tech manufacturer of chemicals, fibers, engineered materials, and aerospace and automotive products.

        At AlliedSignal, Mr. Bossidy was widely known as a demanding boss so fixated on “making the numbers” that he kept a “leaker's list” of underperforming divisions. Managers who made the list for two straight quarters were fired.

        Harriet C. Baldwin, an analyst at Deutsche Banc Alex. Brown, said Mr. Bossidy faces a challenge with Honeywell employees “to get everybody back to focusing on operating as a stand-alone business.”

        Mr. Bossidy must improve the company's operating margins, reassess its management team and sell off poorly performing businesses, she said. Then Mr. Bossidy, hired under a one-year contract by Honeywell's board, must decide whether to find a successor — or seek another merger partner for Honeywell.


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