The European Court of First Instance Upholds the European Commission’s GE/Honeywell Merger Prohibition

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.

Background

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.

The judgments

Findings of the Commission that were upheld by the CFI

• The CFI upheld the Commission’s findings that the merger would have significantly impeded competition on three relevant markets: (i) the market for jet engines for large regional aircraft; (ii) the market for engines for corporate jet aircraft; and (iii) the market for small marine gas turbines. The CFI concluded that in the first market a monopoly with harmful effects on competition in the EU would have been created. In the second and third markets the parties would have become dominant.

• With regard to other aspects of the case, the CFI held, first, that the Commission could conclude, without making a manifest error of assessment, that GE held a dominant position, prior to the merger, on the market for jet engines for large commercial aircraft. The CFI found, inter alia, that the Commission could legitimately consider GE to have used the commercial strength of subsidiaries within its group, in particular the aircraft leasing company GECAS, to win contracts which it might well not have won without their involvement.

• The part of the Commission’s decision relating to the vertical overlap between Honeywell’s engine starters and GE’s engines was considered to be unfounded. More specifically, the CFI held that the Commission failed to take into account the deterrent effect of Article 82 EC, despite its relevance, and that the Commission’s analysis was, as a result, vitiated by a manifest error of assessment.

• The Commission did not establish to a sufficient degree of probability that the merged entity would have used GE‘s financial and commercial strength to extend to Honeywell’s markets (avionics and non-avionics products) thereby creating dominant positions on the various avionics and non-avionics markets concerned.

• The Commission also failed to establish to a sufficient degree of probability that the merged entity would have bundled sales of GE’s engines with Honeywell’s avionics and non-avionics products thereby failing to demonstrate that dominant positions would have been created or strengthened for it on the different markets concerned.