GE and Honeywell Deal Looks Kaput

Honeywell is losing more than 11% as news its concessions to European regulators fall short of what was requested.
By David A. Gaffen ,

General Electric

(GE) - Get Report

and

Honeywell

(HON) - Get Report

all but raised the white flag in the European theater today.

The two companies, which proposed last October to combine and which have recently been negotiating with European regulators, this morning submitted their final package of proposed divestitures to win approval from the

European Commission

. But the companies acknowledged their proposals are far short of what the regulators want, and said "GE is not optimistic that its proposal will meet with European regulatory approval."

Honeywell is getting hammered, dropping $5.16, or 12.2%, to $37.10, as investors react to the news the deal is virtually dead. General Electric's stock is rising, as investors react positively to the fact their earnings won't be diluted if the deal dies. GE's shares are up 81 cents, or 1.7%, to $48.67.

In order to approve the merger, European regulators wanted the companies to divest billions of dollars in properties, especially in the aerospace businesses, where the combined company would have dominated. Both companies are already major manufacturers of aircraft engines and parts.

GE and Honeywell this morning proposed to divest of $2.2 billion in revenue in Honeywell's aerospace business, creating separate businesses focusing on regional jet engines, air turbine starters and avionics products. In addition, GE proposed to set up GE Capital Aviation Services as a separate entity to deal with those products, but it would remain owned by GE.

In a statement, GE chairman Jack Welch said GE President "Jeff Immelt and I wanted to complete the transaction but we have always said there is a point at which we wouldn't do the deal. The Commission's extraordinary demands are far beyond that point."

The companies first announced the proposal Oct. 23, 2000, in a transaction that would have been valued at $45 billion. U.S. and Canadian regulatory officials have already approved the deal.

Both stocks are among the 30 in the

Dow Jones Industrial Average, which was lately being weighed down in part by Honeywell.

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