Honeywell International Inc shares fell 4.6 percent Friday, the largest drop in two months, on concern demands from European antitrust regulators may derail the company's takeover by General Electric Co.
The proposed US$46 billion acquisition hit a "major hurdle" after European regulators asked General Electric to spin off its plane-leasing unit, the Wall Street Journal reported, citing people familiar with the negotiations.
The company is prepared to ensure management of General Electric Capital Aviation Services, know as GECAS, is separated from the rest of the company and it will amend purchasing policies, the paper said. A demand to divest the unit would kill the merger, the Journal said, citing a person familiar with General Electric's strategy.
"One has to be concerned," said Brian James, an analyst at Loomis Sayles & Co in Boston, which owns General Electric shares.
The agency can block or force changes to company mergers even if the firms aren't based in Europe. GE must present possible proposals to the commission by Thursday. European regulators have until July 12 to rule on the acquisition.
GECAS, because it buys planes and can offer financing, is able to influence market demand toward specific aircraft, the commission said in a statement of objections to the purchase sent last month to the companies. That favors GE Aircraft Engines over competitors Rolls Royce Plc and United Technologies Corp's Pratt & Whitney unit, the commission said.
Shares of Honeywell fell US$2.24 to US$46.51, the biggest decline since April 3. General Electric dropped US$0.77 to US$48.14.
General Electric is exchanging 1.055 shares for each share of Honeywell.
The arbitrage spread between the shares of General Electric and widened to more than US$4 from US$2.85 yesterday. Arbitragers profit from the disparities in the prices of securities, commodities or currencies such as when two companies plan to combine or when one security is convertible into another.
General Electric spokesman Gary Sheffer declined to comment on the Wall Street Journal report. Officials of the European Commission, which is the regulatory agency of the 15-nation European Union, weren't immediately available to comment.
Negotiations between General Electric Chief Executive Jack Welch, who is in Brussels, and EC competition commissioner Mario Monti grew so complex that a meeting between then was postponed, the newspaper said.
GE's Sheffer said earlier a meeting had been deferred and ``as these discussions continue it just hasn't reached the stage where that type of meeting is needed.'' General Electric is prepared to divest other businesses with annual revenue of about US$1 billion though it's unclear what those businesses are, the Journal said.
Dennis Dammerman, a General Electric vice chairman, is leading talks with the European Commission's merger task force, and continues those meetings, Sheffer said earlier.
In March, General Electric President and Chairman-Elect Jeff Immelt had said the company wouldn't make any ``significant'' assets to appease regulators reviewing the Honeywell purchase.
Analysts have interpreted that to mean the leasing unit, Honeywell's avionics or GE Aircraft Engines.
General Electric is the biggest jet-engine maker and also is the largest lessor of aircraft through its GE Capital Aviation Services unit. Honeywell is the biggest maker of small engines used by planes on the ground.
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