GE-Honeywell Merger Creates Industry Giant

Strategic Insights -

The General Electric (GE) and Honeywell merger to form a $45 billion giant has set off a wave of mega-deals in the aerospace industry as rival firms scramble to gain mass and remain competitive. The deal, announced on Saturday, marks a significant consolidation of the industry and creates a subsystems titan with unparalleled market power. Analysts and executives predict that this move will have major market-shaping implications, particularly in commercial aircraft exposure, as GE-Honeywell gains the ability to produce virtually everything that would go into either a commercial or military aircraft.

Key Takeaways:

  • The GE-Honeywell merger is expected to create a $45 billion giant, making it the world's most powerful supplier of aerospace subsystems.
  • The deal brings together GE's large commercial and military jet engine, controls, power generation, advanced materials, and financial services business lines with Honeywell's avionics, small jet engine, landing gear, auxiliary power unit, performance materials, and controls operations.
  • Rival firms, including United Technologies, BFGoodrich, Rockwell Collins, TRW, and Litton, are seeking their own mega-deals to gain mass and remain competitive.
  • The merger is expected to face no opposition from US antitrust officials, given the complementary nature of the two companies' businesses.
  • GE gains significant financial capabilities with the acquisition of Honeywell, which will enable it to pump more resources into major aircraft programs, such as Boeing's 777-200LR and -300ER.
  • The deal also broadens GE's US government business, representing a reversal of strategy for the company, which has previously divested its aerospace operations.

Statistics:

  • The GE-Honeywell merger is valued at $45 billion.
  • The deal brings together two companies with combined revenues of $54 billion in 1999.
  • Honeywell reported a 48.7 percent drop in income and flat sales during the third quarter.
  • GE accounted for 50% of its profits from financial services prior to the merger.
  • The merger will give GE access to Honeywell's $2.5 billion in net income, enabling it to grow its financial services business faster than before.

Sources:

  • Defense Daily, October 19
  • Defense Daily, June 21
  • Teal Group
  • Credit Suisse First Boston
  • First Union Securities
  • Lexington Institute