In his two decades at the helm of General Electric, during which the market value of the company increased by more than $400 billion, Jack Welch did not often feel the sting of defeat.
Yet in the waning months of his storied career, defeat is exactly what the irascible chairman and CEO was handed when the European Commission in August staunchly rejected his company’s planned $45 billion takeover of Honeywell.
After the deal was announced in October 2000 it seemed Welch had scored an enormous coup, swooping in to snatch Honeywell from the clutches of competitor United Technologies, which at the time had been in active negotiations to merge with the Morristown, N.J. industrial giant.
He called it “the cleanest deal you’ll ever see,” and predicted it would cruise through regulatory channels with nary a hiccup. So confident was Welch in the deal’s ability to pass federal and international antitrust muster that he didn’t even bother to contact the Europeans who were responsible for approving or rejecting the deal, the biggest ever proposed in U.S. history.
In hindsight this may have been Welch’s fatal mistake. Although the EC competition commission denies that Welch’s bravado influenced its decision, it is clear that Welch could have done more to assuage commissioners. GE’s competitors certainly voiced their opinions, something that clearly affected the discourse between commissioners and GE lawyers as the deal was falling apart.
Specifically, competitors warned that GE’s powerful GECAS aircraft financing division would wield too much power if it combined with Honeywell. They pointed out to competition commissioner Mario Monti that GECAS was often a launch customer for new airplane programs, adding that they believed the combination of Honeywell’s avionics and flight controls with GE’s engines and GECAS financing arm would do them untold harm. In other words, they viewed with suspicion precisely those relationships that, for Welch, made the deal so attractive.
By June last year, with the deal fast unraveling, Monti told Welch he would approve the merger only if GE made the concessions that Welch said made going ahead pointless. For Welch the rejection of the deal a month later could not help but tarnish what had otherwise been a remarkably successful career. But it would also add to the mystique of one of business’s legendary figures, something that will surely help to ease the pain of defeat.