Luxembourg, Luxembourg, May 19--General Electric Co. and Honeywell International Inc. will argue next week that European Union regulators ``ignored evidence'' and ``committed errors of fact and assessment'' when they scuttled their proposed $47 billion merger in 2001, according to court documents obtained by Bloomberg News.
The companies are challenging EU Competition Commissioner Mario Monti's decision to block the merger of the two U.S. companies after it had been approved by U.S. regulators. The hearings before the European Court of First Instance in Luxembourg, the EU's second-highest tribunal, are the first public test of antitrust theories that have been rejected by U.S. regulators, the companies say in the documents.
The commission's allegations about the anti-competitive effects of the combination ``do not have any legal, economic or factual basis,'' General Electric argues in the documents.
The Brussels-based regulatory arm of the EU blocked the merger after finding that General Electric, the world's biggest maker of aircraft engines, could restrict competition by pressuring airplane makers to buy its engines and Honeywell's cockpit gear. The reasoning was criticized by lawyers who said it broadened the regulator's power to block mergers where conglomerates enter new or related industries.
``The commission has made a convincing case,'' said Karel Van Miert, who for five years was Europe's competition commissioner. ``I'd be astonished if the court comes to a different conclusion.''
The companies will hold separate hearings next week -- Honeywell on Tuesday and General Electric on Thursday. A court opinion is expected later this year and a final judgment may come next year.
``The commission will vigorously defend the decision it took,'' Monti said at a speech at the Council on Foreign Relations seminar in New York on Tuesday. He declined to comment further on the case.
In overturning three merger decisions in 2002, including Tetra Laval SA's 1.7 billion-euro ($2 billion) purchase of packaging- equipment maker Sidel SA, the court criticized the commission's handling of evidence and its assessment of economic analysis. General Electric and Honeywell will stress flaws in the commission's practices in this probe, according to the documents.
``GE disagreed with the commission's findings, conclusions and theories in the Honeywell decision and is seeking to have the court provide guidance as to the correct approach for assessing future transactions,'' said General Electric spokeswoman Louise Binns.
``We appealed the commission's decision because we felt it was wrong on the facts and the applicable law,'' said Honeywell spokeswoman Elma Peters in Brussels.
Lawyers for General Electric and Honeywell will argue the economic theory the commission used to block the merger wasn't supported by sound evidence, according to the documents. They will also argue the commission ignored other economic models and information that contradicted its opinion.
``The commission actually ignored the well-founded evidence advanced by General Electric,'' the documents say. ``Economists demonstrated that post-merger mixed bundling was unlikely to be significant and would be pro-competitive.''
Regulators said General Electric's leasing arm, GE Capital Aviation Services, or Gecas, would gain too much market control if the company bought Honeywell's avionics business. The veto was justified on Honeywell's market share, General Electric's dominance in jet engines, the leasing arm's buying power and exclusive arrangements favoring General Electric's engines, and the
General Electric and Honeywell lawyers will argue that the commission didn't rely on evidence to back up its leveraging theory. In its decision, EU regulators said they didn't need to use a particular economic model to conclude that the merged company's leveraging power would harm competition.
