General Electric Co rejected Honeywell International's proposal to shave US$1 billion off the price of GE's takeover offer and make major divestitures, saying it ``makes no sense'' for shareholders and falls short of European regulators' demands.
Honeywell offered to cut the price early Friday because European Commission regulators wanted GE to sell off some operations in a move that GE viewed as financially unattractive.
Within hours, GE chairman and CEO Jack Welch responded in a letter that said the proposal still falls short of what regulators will accept.
"What the Commission is seeking cuts the heart out of the strategic rationale of our deal," he wrote. "The new deal you propose, in response to the Commission, makes no sense for our share owners, for the same strategic reasons."
Honeywell offered to reduce the amount of stock GE would pay for Honeywell, effectively decreasing the value of the deal from US$41.7 billion to US$39.5 billion.
In return, under the Honeywell proposal, GE would make US$2.1 billion of divestitures it originally offered to satisfy EC regulators but reduced to US$1.1 billion after coming up with a plan to spin off part of GE's powerful aircraft-financing and leasing unit.
The new Honeywell proposal to EU regulators would include both the US$2.1 billion in divestitures and the partial spinoff.
"Honeywell's proposal satisfies all of the competition concerns and serves the best interests of all stakeholders," Honeywell chairman and chief executive Michael Bonsignore, said in a letter to Welch outlining the offer. "It provides GE with better economics for the deal, and it satisfies the European Commission's divestiture requirements."
GE spokeswoman Louise Binns said GE has no plans to make any further proposals to the European Commission before its vote on the merger, expected Tuesday. She would not declare the deal dead.
GE does not plan to withdraw its existing proposal, Binns said, but added, "We're not optimistic of approval."
Before Honeywell made its new offer, EU Competition Commissioner Mario Monti turned down GE's latest proposal regarding the aircraft-financing and leasing arm, GE Capital Aviation Services, late Thursday, according to sources close to the deal who spoke on condition of anonymity.
In his letter to Welch, Bonsignore cited a conversation the two had with Monti Thursday as the reason for the new offer.
The spinoff and original divestiture offer ``specifically address the concerns expressed by Commissioner Monti yesterday,'' Bonsignore wrote.
EU Commission spokesman Michael Tscherny declined to comment on the letter.
GE's offer to sell a minority stake in GECAS fell short because it didn't change the structure of its control of GECAS' purchasing policy, said one source. Monti's office fears GECAS, one of the world's top purchasers of aircraft, would promote GE-Honeywell equipment to the detriment of competitors, leading eventually to higher prices.
Despite the rejection, EU officials said it was still possible that GE could try again before the next meeting of the full Commission on Tuesday.
Monti has said the Commission would likely vote on the deal at that meeting, although his spokeswoman, Amelia Torres, stressed Friday that the final agenda had not yet been adopted.
The deal won conditional antitrust clearance in Washington in May, but its tortured path in Europe has raised concern among Bush administration officials. Some in Congress have even accused the EU of protectionism and threatened retaliation.
If the merger were to be officially rejected Tuesday, GE could either challenge the decision in court or file a new application and start the process all over again, Torres said.
The 15-nation European Union must approve the deal between the US companies, just as regulators in the US regularly have to approve mergers between European companies.
In Friday afternoon trading, Honeywell shares fell dlrs 4.41, or 11.5 percent, to US$34.79 on the New York Stock Exchange, where GE shares rose US$0.97to US$49.84.
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