Last minute deal buys Honeywell

Jack Welch, chairman of GE for two decades puts together his biggest deal at 64 to buy Honeywell. Paul Gay looks at events leading up to the deal.

Jack Welch, chairman of GE for two decades puts together his biggest deal at 64 to buy Honeywell. Paul Gay looks at events leading up to the deal and analyses the effect it will have on the control sector.

Only months before he was due to retire, Jack Welch – chairman of General Electric for the past two decades – pulled off a last-minute deal to buy Honeywell in a $43 billion stock deal. Welch, now 64, is one of the most successful and admired industrial executives in the USA, and will now stay until the end of 2001 to see the Honeywell acquisition through to its completion.

The Honeywell acquisition has been a saga, almost of Hollywood proportions. First there was a strong rumour that Siemens was interested and was developing a plan. Then a week later United Technologies, which had been involved with Honeywell in numerous projects and technical partnerships in recent months, came up with a $40 billion offer.

The warning lights flashed for Welch when he was visiting Wall Street and saw Honeywell stock surge $10, apparently without reason. Straight away, he went back to the office and put together the largest acquisition in GE’s history in just three days. Not wishing to enter a bidding battle UTC did not respond and the deal was done.

Welch is reported to have said that as a large GE shareholder himself, he was keener than anyone to add value to the deal. Know by many as Neutron Jack, Welch suggested: ‘GE stock going up is all my kids and I have got. So if you think I’m running out [of this deal], you’re wacky.’

Welch, joined GE in 1960 and became chairman and chief executive officer in April 1981. When he took control of the company, GE’s annual profits stood at about $1.6 billion. Last year, earnings rose to $10.72 billion. During the same period, GE’s market capitalisation has risen from about $14 billion to nearly $500 billion.

Not only is the $43bn deal between General Electric and Honeywell the biggest industrial merger in history, it could be one of the most significant. It will it create a strong aerospace company with GE’s strength in aircraft engines and Honeywell’s avionics and engine control skills but on the industrial controls front, the emerging company will be a powerful and diverse industrial controls conglomerate. And according to Welch, the merger is ‘a perfect fit with limited antitrust problems’.

On the industrial controls front Honeywell’s activities in the sensing, instrumentation and process controls arena are unlikely to clash with GE Fanuc’s programmable logic controllers and machine controls business. The same could be said of GE’s drives and motors products, which will augment and not detract from Honeywell’s offering. Presumably some of Honeywell’s supply arrangements, with component manufacturers such as Rockwell, will surely be under the microscope.

The merger of two giants will surely upset the league tables and create ripples throughout the industrial controls sector. GE Honeywell must now have podium status being ranked among the top three. The ripples that follow such a significant merger is bound to involve other major players. A quick look at moving stocks prices around the world would suggest that Emerson, or parts of it, could soon be a target for Siemens and the improving Schneider for ABB.