General Electric Co's failure to acquire Honeywell International was a rare defeat for the world's most valuable company, but is unlikely to have much real bottom-line impact.
During Jack Welch's two decades as its leader, GE expanded from a US$13 billion maker of appliances and lightbulbs into a US$480 billion conglomerate that manages to provide strong returns even during tough economic times.
The merger's failure left Honeywell weakened and prompted the sudden departure of its chief executive, but financial analysts say the consequence for GE involves prestige more than profitability.
"There is an aura around General Electric that they can't do wrong," said Caglar Ozden, a professor of economics at Emory University in Atlanta. "They realize they're vulnerable. I think GE had the impression they were above things."
European regulators last week rejected the proposed US$41 billion merger on antitrust grounds.
Welch, who delayed his retirement to see the merger through, is expected to leave the company soon, although no date has been set.
His successor, Jeffrey Immelt, is expected to start leaving his mark on the company sometime in the next six to 12 months. Analysts expect GE will make more acquisitions, though the deals are likely to be much smaller than the Honeywell purchase.
Some think GE is better off without Honeywell, because large mergers often run into integration troubles after the deals are sealed.
"I think it's a mild setback," said John Inch, an analyst with Bear Stearns. "Is there long-term harm? No."
While Welch hasn't said yet when he will retire, analysts have no doubts an announcement will be made soon.
"I think he's probably looking for a gracious exit," said Lawrence Horan, a GE analyst with Parker/Hunter in Pittsburgh.
And most observers insist Welch will be remembered more for what he accomplished for GE over the long term -- not for capping his career with a failed merger.
"I think history is just going to remember Jack Welch was one of the greatest industrial managers of our time," Inch said. "Every conglomerate in America wants to grow up to be GE."
Immelt isn't expected to make major changes for GE at first.
"But I do expect something incremental that is significant so people will get a message about where Jeff is going strategically with the company," Horan said.
Experts agree GE will be more cautious when considering large acquisitions. The rejection by European regulators was the first time a merger by two American companies was denied after being approved in the US.
"It's going to be a change in thinking in how they do these mergers," Ozden said. "Next time they're going to think twice."
A GE spokesman says said observers shouldn't rule out any big-dollar purchases.
"If the right big deal comes along that we think will deliver shareholder value, I'm sure we'll go after that as well," said the spokesman, Gary Sheffer.
Immelt faces a number of challenges, including a weak economy, possible litigation from Honeywell over the failure of the merger, and concerns over whether GE's portfolio of businesses is sufficiently balanced. Also looming is a possible order to clean up PCBs from the Hudson River that could cost the company nearly US$500 million.
But GE's wide range of products, its huge cash flow and backlog of orders leave the company well-positioned to weather problems that could seriously hurt other companies, financial analysts said.
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