GE in largest industrial takeover

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The Independent Online

General Electric Co., one of the world's largest and most profitable companies, took a big step over the weekend toward getting even bigger.

General Electric Co., one of the world's largest and most profitable companies, took a big step over the weekend toward getting even bigger.

The industrial powerhouse agreed Sunday to acquire Honeywell International Inc. for dlrs 45 billion in stock, in a move that further solidifies GE as an aerospace giant.

GE is a diversified company that produces power plant parts, aircraft engines, appliances and owns the NBC television network. Honeywell manufactures equipment for aerospace systems, power generation, transportation and factory automation, as well as specialty chemicals, plastics, fibers and other industrial materials.

The boards of both companies have approved the deal, which is expected to be completed in early 2001. The acquisition is subject to regulatory approval and the approval of Honeywell shareowners.

GE expects the deal to boost its earnings per share by double digits in the first full year, excluding any one-time charges.

"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 Chairman John F. Welch Jr. postponed his planned retirement until the end of 2001 to oversee the merger, which creates one of the world's largest industrial companies.

Sunday's agreement is the result of intense last-minute dealmaking by GE, which scuttled the plans of industrial conglomerate United Technologies Corp. to buy Honeywell for about dlrs 40 billion.

"This transaction preserves and strengthens the Honeywell brand worldwide while providing superior value to our shareowners, customers and employees," said Honeywell CEO Michael R. Bonsignore, who will join GE's board of directors.

Under terms of the deal, GE will assume an unspecified amount of Honeywell debt. Honeywell's corporate headquarters in Morristown, New Jersey, will be closed as part of the deal and about 550 employees there may lose their jobs, said Honeywell spokesman Tom Crane.

GE, which anticipates 2000 revenues of dlrs 130 billion, has been remaking itself since the 1990s into a powerhouse in financial services, business consulting and equipment maintenance, with 70 percent of sales coming from these revenue streams, according to Heymann.

GE dominates the market for aircraft engines and servicing, while Honeywell is the predominant supplier of aircraft electronics for commercial jets. Honeywell also dominates the market for air traffic control systems, Heymann noted.

"This deal will allow GE to become the pre-eminent provider of productivity enhancement services in the airline industry, utilities and factory automation services," Heymann said.

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

The two companies are partners on projects such as a dlrs 196 million contract to develop gas turbine engines for U.S. Army battle tanks and an artillery system, and on a deal with Fortune Electric Co. of Taipei to develop lighter and cheaper electrical distribution transformers.

GE's 11th-hour offer for Honeywell surprised many given the fact that Welch, who turns 65 next month, was expected to hand over control of the company six months from now.

Welch is widely credited with transforming a company best known for making light bulbs and appliances into an empire that includes the television network NBC. He shook up GE's management structure and sold major business divisions, including housewares, air conditioning and semiconductor businesses.

In his 20 years as chairman of GE, profits have risen from dlrs 1.6 billion to dlrs 10.7 billion in 1999.

Honeywell International was created last December, when Minneapolis-based Honeywell was acquired by AlliedSignal, which is based in Morristown, New Jersey. The company has about 120,000 employees worldwide and earned dlrs 1.54 billion on revenue of dlrs 23.74 billion in 1999.

While Welch will continue to guide GE until the end of 2001, he is expected to name a presumed successor before the end of the year. In June, Welch said a list of potential candidates to succeed him as chairman had been narrowed to three people.