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THE CUTTING EDGE: FOCUS ON TECHNOLOGY

GE Plans to Acquire Honeywell for $45 Billion

Merger: After an 11th-hour bid, the firm wrenches the deal from United Technologies, boosting its dominance in key areas.

October 23, 2000|From Times Staff and Wire Reports

NEW YORK — General Electric Co. said Sunday that it agreed to buy Honeywell International Inc. for $45 billion in stock, in a move to bolster its key aerospace, industrial systems, power and plastics businesses.

As part of the deal, the largest acquisition in GE's history, John "Jack" Welch will stay on as chairman and chief executive of GE through the end of 2001, pushing back a planned April retirement in order to see through the integration of Honeywell.

GE was expected to name a No. 2 and heir apparent to Welch, an American business icon who turns 65 on Nov. 19, within the next month or two.

GE directors approved the acquisition Sunday, completing a sudden, opportunistic strike by the nation's fifth-largest public corporation, which made its overture to Honeywell on Friday about 10 minutes before Honeywell was about to accept a $40-billion offer from United Technologies Inc.

The acquisition, which is subject to approval by Honeywell shareholders and federal antitrust officials, would make GE a dominant provider of aircraft components for commercial and military aircraft.

"Honeywell's core group of businesses--Avionics, Automated Controls, Performance Materials and its new microturbine technology--are a perfect complement to four of GE's major businesses," Welch said in a prepared statement.

Michael Bonsignore, chairman and CEO of Honeywell, will become a GE board member, and two more Honeywell directors will join the GE board.

The merger could have considerable impact in California, where about 4,700 Honeywell employees are at nearly a dozen facilities. In Southern California, about 2,000 employees work in Torrance at the company's aerospace-parts facility. Torrance also is home of Honeywell's Transportation & Power Systems unit, where about 1,000 workers produce turbochargers, brake systems and air coolers for trucks and automobiles. Electronic Materials, a Honeywell division that makes semiconductor devices, is headquartered in Los Gatos, Calif.

Honeywell was formed last December when AlliedSignal Inc. bought the old Honeywell Inc. for $15 billion and adopted its name.

"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 Inc. said Sunday.

GE, the world's most profitable company with anticipated 2000 revenue of $130 billion, produces power plant parts, nuclear reactors and aircraft engines and owns the NBC television network, among other operations.

It dominates the market for aircraft engines and servicing, while Honeywell is the predominant supplier of aircraft electronics for commercial jets.

Overlap in some areas is expected to raise antitrust concerns for U.S. and European regulators, who might require the combined company to divest some of its businesses as a condition of approval.

The corporate cultures also would mesh well. Lawrence Bossidy, a former top executive at GE, had been chairman and CEO of Allied Signal and then was chairman at Honeywell after they merged.

Under the deal, GE will pay 1.055 shares for each share of Honeywell. That values Honeywell at about $55.12 a share, based on GE's closing price Friday of $52.25. GE will also assume $3.4 billion in Honeywell debt, according to Bloomberg News. Honeywell's Morristown, N.J., corporate headquarters will be closed as part of the deal and about 550 employees there may lose their jobs, said spokesman Tom Crane.

Shares of Honeywell rose $10.13, or 28%, to close at $46 in regular trading on the New York Stock Exchange on Friday.

GE stock, in contrast, fell $3.38, or more than 6%, to close at $52.25 in regular NYSE trading Friday.

Perhaps no other such multibillion-dollar deal has ever occurred in quite the way that this deal was struck.

Welch learned late Thursday, during an interview with a reporter from the GE affiliate CNBC, that Honeywell and United Technologies were close to a deal, officials said. On Friday morning, Welch canvassed GE executives and board members, then called Bonsignore with an offer that topped UT's bid.

Bonsignore said he would have to have something in writing, telling Welch that "a phone call won't do it," according to one official's account. So Welch faxed a handwritten bid from GE's office in Manhattan to the Honeywell headquarters. At that point, Honeywell broke off its negotiations with United Technologies.

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