NEW YORK (CNNfn) - The European Commission confirmed Wednesday that it sent out a draft decision recommending that the European Union reject General Electric Co.'s proposed $41 billion purchase of Honeywell International Inc.|
The EC sent out the draft recommendation last Friday to the 15 countries that make up the European Union, EC spokesman Michael Tscherny told CNNfn. The draft is standard practice and the Commission may change its view even after sending a negative recommendation.
"A negative draft recommendation can precede a positive outcome," Tscherny said. "The case is not over."
The EC is sending out the draft recommendation to interested parties who can comment. The proposed merger has raised strong concerns among airlines and aircraft equipment makers on both sides of the Atlantic, but Tscherny declined to name which parties have issued complaints. He did note that Airbus did not try to block the merger.
The advisory committee of 15 EU regulators is slated to meet Monday and industry comment should arrive next week, Tscherny said. The EC may be able to present a final draft recommendation to EU ministers in Strasbourg, France, July 3. If not, the EC has until July 11 in Brussels as the decision is due by July 12.
A GE spokesman declined to comment on the draft recommendation, while Honeywell continued to maintain it is committed to the takeover despite the EC's draft decision.
"Our position hasn't changed," Honeywell spokesman Tom Crane said. "There's no tension between GE and Honeywell."
Honeywell (HON: down $1.48 to $37.02, Research, Estimates) shares continued to slide on the news Wednesday, falling nearly four percent in afternoon trading, while GE (GE: up $1.89 to $50.76, Research, Estimates) gained nearly as much.
A done deal?
The deal's apparent collapse caught many off guard last week. GE Chairman Jack Welch expressed his surprise with the EC's demands, while company President Jeffrey Immelt said in published reports he didn't think the merger would go through. Meanwhile, the board of Honeywell International Inc. reaffirmed Monday its full commitment to the takeover.
Even U.S. Senators are getting involved. A European decision to block the deal could have a "chilling effect" on aerospace cooperation between the EC and U.S., said Senator Jay Rockefeller IV (D-WV), chairman of the Senate Aviation Subcommittee.
If the EC is found to unfairly block mergers, "then the Subcommittee will need to re-examine the open market the U.S. has maintained for those sorts of acquisitions," Rockefeller said in a letter to the vice president of the EC, Loyola de Palacio.
Fairfield, Conn.-based GE submitted its final proposal last week to the EC. The Commission wanted the U.S.-based industrial conglomerate to either spin off GECAS or sell shares in the unit. Instead, GE proposed to set up a separate audit and management structure for GECAS and sell $2.2 billion worth of Honeywell's aerospace products.
GE's offer apparently fell short of what the European regulators wanted and Welch expressed his surprise with the negotiations last week, saying that European regulators' demands exceeded what he had imagined. The very public statement spurred many to call the deal over.
The EC draft recommending the EU reject the merger added to negativity surrounding the merger. However, the EC's issuance of the draft is standard practice, said EU law expert, Simon Holmes, of the law firm SJ Berwin. The EU legal department had been scrutinizing the deal two weeks ago so the draft pre-dates the final submissions from GE and Honeywell, Holmes said.
"It should not be presumed that this draft gives any indication as to the final outcome," he said.