GE to Buy Honeywell for $45 Billion

N E W  Y O R K, Oct. 23, 2000 -- General Electric has agreed to acquireHoneywell International for $45 billion in stock as GEchairman John F. Welch Jr. postponed his planned retirement untilthe end of 2001 to oversee the merger.

The boards of GE and Honeywell approved the deal Sunday tocreate one of the world’s largest industrial companies followingsome intense last-minute dealmaking by GE, which scuttled the plansof industrial conglomerate United Technologies to buyHoneywell for about $40 billion. United Technologies called off itsnegotiations on Friday after Honeywell revealed it was talking to anew suitor.

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

Wall Street was uninspired by news of the deal. GE lost $3.31today 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 TogetherUnder terms of the deal, expected to close in early 2001, GEwill also assume an unspecified amount of Honeywell debt.Honeywell’s corporate headquarters in Morristown, N.J., will beclosed as part of the deal and about 550 employees there may losetheir jobs, said Honeywell spokesman Tom Crane.

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

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

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

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

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

GE Plans to Become More ProfitableGE expects the acquisition of Honeywell to boost its earningsper share by double digits in the first full year, excluding anyone-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, powergeneration, transportation and factory automation, as well asspecialty chemicals, plastics, fibers and other industrialmaterials.

“This is how GE gets a bigger footprint in the globalmarketplace, increasing its size by nearly a third overnight andadding to its dominance in key areas,” analyst Nicholas P. Heymannof Prudential Securities said Sunday.

Another Side to a Diverse CompanyGE, the world’s most profitable company with anticipated 2000revenues of $130 billion, has been remaking itself since the 1990sinto a powerhouse in financial services, business consulting andequipment maintenance, with 70 percent of sales coming from theserevenue streams, according to Heymann.

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

With the Honeywell acquisition, GE would also be able to sellcustomers Honeywell software that links Web commerce to thefactory.

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

Deal Brings Up Antitrust IssuesOverlap in some areas is expected to raise antitrust concernsamong U.S. and European regulators, who could require the combinedcompany to divest some of its businesses as a condition ofapproval.

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

Jack Welch Postpones RetirementGE’s 11th-hour offer for Honeywell surprised many given the factthat Welch, who turns 65 next month, was expected to hand overcontrol of the company six months from now.

Welch is widely credited with transforming a company best knownfor making light bulbs and appliances into an empire that includesthe television network NBC. He shook up GE’s management structureand sold major business divisions, including housewares, airconditioning and semiconductor businesses.

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

Those results set the stage for retirement, and Welch insistedtoday he was ready to go. But the unexpected chance to buyHoneywell demanded that he say, to make the transition work, hesaid.

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

Bonsignore said the deal was partly contingent on Welch’sdecision.

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

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

While Welch will continue to guide GE until the end of 2001, hesaid today he still expects to name a presumed successor beforethe end of the year. In June, Welch said a list of potentialcandidates to succeed him as chairman had been narrowed to threepeople.

Analysts say the short list of possible Welch successorsincludes: Robert L. Nardelli, president and CEO of GE PowerSystems; W. James McNerney, head of GE Aircraft Engines; andJeffrey 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 candidatesfor Welch’s job. But earlier this year, GE named auxiliary managersbehind the three men, which analysts saw as confirmation that theyare the contenders.