December 14, 2005
On 14 December 2005 the European Court of First Instance (the "CFI") delivered its long awaited judgments in the appeals against the GE/Honeywell decision (cases T-209/01 and T-210/01). The CFI upheld the GE/Honeywell merger prohibition decision of the European Commission (the "Commission"), concluding that the proposed merger would have created or strengthened dominant positions as a result of which effective competition would have been significantly impeded on three markets.
According to the CFI, the horizontal effects of the proposed merger were sufficient to establish that the Commission merger prohibition was well-founded. However, the CFI further stated that the Commission made manifest errors of assessment with regard to the effects of the merger on particular markets, especially in its analysis of conglomerate effects resulting from the concentration.
On 22 October 2000 General Electric and Honeywell announced their plans to merge. After the US DoJ informally indicated to the parties that it would allow the merger to proceed subject to remedies, the parties filed their merger notification with the Commission. Judging that the proposed commitments offered by the parties were insufficient, the Commission blocked the merger. As the parties were prohibited to put the merger into effect in the EU, GE and Honeywell had to abandon the deal. However, they appealed the prohibition decision of the Commission before the CFI.
Findings of the Commission that were upheld by the CFI
Aspects of the Commission’s decision that were considered as constituting manifest errors of assessment
Importance of the judgments
The Honeywell v Commission and GE v Commission judgments are important for the following reasons:
First, the case in question was the only merger between two US undertakings ever blocked by the Commission, while it was cleared by the US DoJ and other authorities worldwide. The EU and the US competition authorities have constantly claimed their relationship to be very cooperative and policies to be convergent, yet GE/Honeywell showed an obvious lack of efficient cooperation and rather diverging antitrust enforcement policies. The competition authorities have already learned the lesson and talks on a "second generation" agreement on closer cooperation between them have been re-launched.
Second, many commentators expected that the CFI would overturn the Commission decision and continue the practice established in the Airtours/First Choice, MCI WorldCom/Sprint, Schneider/Legrand and Tetra Laval/Sidel cases, where flaws in the Commission’s reasoning and serious procedural errors led to the annulment of the merger prohibition decisions. However, in GE/Honeywell the CFI did not concentrate on procedural errors, but rather analyzed the Commission’s substantive arguments.
Finally, in its judgments the CFI provided some very important insights on certain substantive issues, such as the economic theory of "conglomerate effects". This theory has already been used in the Tetra Laval/Sidel case, where the CFI overturned the Commission’s decision to prohibit the proposed merger on the basis that the Commission failed to prove that a merged entity would not only have the ability to harm competition, but that it would actually act anti-competitively. In GE/Honeywell once again the theory of "conglomerate effects" formed the basis of the Commission’s decision. However, in this case it was not necessary to prove the existence of conglomerate effects, sincethe merger’s horizontal effects were sufficient to establish that the concentration was incompatible with the common market.
Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or contact:
Peter Alexiadis – Brussels: +32 2 554 7210; firstname.lastname@example.org
David Wood – Brussels: +32 2 554 7210; email@example.com
James Ashe-Taylor – London: +44 20 7071 4221; firstname.lastname@example.org
© 2005 Gibson, Dunn & Crutcher LLP