The European Union's second highest court today upheld the European Commission's ban on General Electric purchasing Honeywell International, but said it made "some errors".
Nonetheless, the Court of First Instance said the Commission was right to prohibit the deal because a GE-Honeywell combination would have created a dominant position in markets for jet engines for large regional aircraft, for corporate jet aircraft and for small marine gas turbines.
"These findings are sufficient for it to be concluded that the merger is incompatible with the common market," the court said in a statement.
The European Commission's competition agency rejected GE's proposed US$42 billion purchase of Honeywell in 2001, although United States antitrust authorities had approved the deal. The decision had been closely watched by the Commission, which was stung by strong criticism from the United States, including from President George W Bush and his Cabinet.
"The Commission welcomes the ruling and will have a more detailed statement at midday," Commission spokesman Jonathan Todd said.
The court also found GE could have brought to bear the financial strength of its airplane leasing and financial arm, Gecas.
"The Commission could legitimately consider GE to have used the commercial strength of subsidiaries within its group, in particular the aircraft leasing company Gecas, to win contracts which it might well not have won without their involvement," the court said in a statement.
That had been a key point for the Commission, which had been pushing the economic theory of "conglomerate effects", that is, that a large company with many different kinds of businesses could combine them against rivals.
However, the court rejected the Commission's use of conglomerate effects in bundling as a reason for rejecting the deal.
"The court held that the Commission did not sufficiently establish that the merged entity would have bundled sales of GE's engines with Honeywell's avionics and non-avionics products," the court said. GE held a dominant position for jet engines prior to the merger, the court agreed.
The European Commission has authority to kill large mergers of companies that do a lot of business in the 25-member European Union. The Commission's original decision was grounded in part on concerns GE would control too much of the supply chain for large commercial jet engines, corporate jet engines and small marine gas turbines.