GE to Buy Honeywell for $45 Billion

General Electric has agreed to acquire Honeywell International for $45 billion in stock as GE chairman John F. Welch Jr. postponed his planned retirement until the end of 2001 to oversee the merger.

The boards of GE and Honeywell approved the deal Sunday to create one of the world’s largest industrial companies following some intense last-minute dealmaking by GE, which scuttled the plans of industrial conglomerate United Technologies to buy Honeywell for about $40 billion. United Technologies called off its negotiations on Friday after Honeywell revealed it was talking to a new suitor.

GE will pay 1.055 of its shares — or $54.99 — for each of Honeywell’s 801 million outstanding shares. Based on Friday’s close. GE’s valuation of Honeywell represents a nearly 10 percent premium over United Technologies’ bid.

Wall Street was uninspired by news of the deal. GE lost $3.31 today to close at $49.19, while Honeywell rose $2.88 to $49.88. But the news had little, if any, impact on other stocks.

Bringing the Companies Together Under terms of the deal, expected to close in early 2001, GE will also assume an unspecified amount of Honeywell debt. Honeywell’s corporate headquarters in Morristown, N.J., will be closed as part of the deal and about 550 employees there may lose their jobs, said Honeywell spokesman Tom Crane.

But the top executives of both companies focused on the deal’s upside today, emphasizing areas where GE and Honeywell have overlapping businesses but with few, if any, overlap in products.

“GE brings good things to life and we’re confident we bring good things to GE,” Honeywell CEO Michael R. Bonsignore said during a news conference in New York.

Welch said Honeywell was too good to pass up, and derided suggestions that GE should’ve been shopping for a New Economy company rather than a venerable manufacturer.

“This is a high-tech company. GE is a high-tech company. We’re merging two real high-tech companies, with real earnings that do real things,” Welch said.

“This transaction preserves and strengthens the Honeywell brand worldwide while providing superior value to our shareowners, customers and employees,” said Bonsignore, who will join GE’s board of directors. “Honeywell’s rich global heritage of technology and innovation will be substantially enhanced as part of GE.”

GE Plans to Become More Profitable GE expects the acquisition of Honeywell to boost its earnings per share by double digits in the first full year, excluding any one-time charges.

GE is a diversified company that produces power plant parts, aircraft engines, appliances and owns the NBC television network. Honeywell manufactures equipment for aerospace systems, power generation, transportation and factory automation, as well as specialty chemicals, plastics, fibers and other industrial materials.

“This is how GE gets a bigger footprint in the global marketplace, increasing its size by nearly a third overnight and adding to its dominance in key areas,” analyst Nicholas P. Heymann of Prudential Securities said Sunday.

Another Side to a Diverse Company GE, the world’s most profitable company with anticipated 2000 revenues of $130 billion, has been remaking itself since the 1990s into a powerhouse in financial services, business consulting and equipment maintenance, with 70 percent of sales coming from these revenue streams, according to Heymann.

“This deal will allow GE to become the pre-eminent provider of productivity enhancement services in the airline industry, utilities and factory automation services,” Heymann said.

With the Honeywell acquisition, GE would also be able to sell customers Honeywell software that links Web commerce to the factory.

GE dominates the market for aircraft engines and servicing, while Honeywell is the predominant supplier of aircraft electronics for commercial jets. Honeywell also dominates the market for air traffic control systems, Heymann noted.

Deal Brings Up Antitrust Issues Overlap in some areas is expected to raise antitrust concerns among U.S. and European regulators, who could require the combined company to divest some of its businesses as a condition of approval.

The two companies are partners on projects such as a $196 million contract to develop gas turbine engines for U.S. Army battle tanks and an artillery system, and on a deal with Fortune Electric of Taipei to develop lighter and cheaper electrical distribution transformers.

Jack Welch Postpones Retirement GE’s 11th-hour offer for Honeywell surprised many given the fact that Welch, who turns 65 next month, was expected to hand over control of the company six months from now.

Welch is widely credited with transforming a company best known for making light bulbs and appliances into an empire that includes the television network NBC. He shook up GE’s management structure and sold major business divisions, including housewares, air conditioning and semiconductor businesses.

In his 20 years as chairman of GE, profits have risen from $1.6 billion to $10.7 billion in 1999.

Those results set the stage for retirement, and Welch insisted today he was ready to go. But the unexpected chance to buy Honeywell demanded that he say, to make the transition work, he said.

“I could’ve gone home early and been a great hero,” Welch said. “I’m betting everything, my reputation, that this makes GE a lot better and their (individual investors’) investment a lot stronger.”

Bonsignore said the deal was partly contingent on Welch’s decision.

“Without a commitment from Jack to stay aboard during this critical period of integration, I think there would’ve been a high level of nervousness” among Honeywell’s board members, he said.

Honeywell International was created last December, when Minneapolis-based Honeywell was acquired by AlliedSignal, which is based in Morristown, N.J. The company, which set up headquarters in Morristown, has about 120,000 employees worldwide and earned $1.54 billion on revenue of $23.74 billion in 1999.

While Welch will continue to guide GE until the end of 2001, he said today he still expects to name a presumed successor before the end of the year. In June, Welch said a list of potential candidates to succeed him as chairman had been narrowed to three people.

Analysts say the short list of possible Welch successors includes: Robert L. Nardelli, president and CEO of GE Power Systems; W. James McNerney, head of GE Aircraft Engines; and Jeffrey R. Immelt, head of GE Medical Systems.

Wall Street does not seem concerned about which man is chosen. All three are considered stars at GE.

GE would not confirm that the three executives are candidates for Welch’s job. But earlier this year, GE named auxiliary managers behind the three men, which analysts saw as confirmation that they are the contenders.