Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

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Vertical and Conglomerate Mergers

In the fall of 2000, General Electric and Honeywell International announced that the two companies would merge with GE acquiring Honeywell. GE is a very well-known firm with annual revenues well over $100 billion. Its businesses are involved in everything from lighting and appliances to television programming (it owns NBC) and financial services. GE is also a major supplier of jet engines for commercial aircraft for which its chief competitors are Rolls Royce and Pratt-Whitney. Honeywell was originally a leader in temperature and environmental controls but has, over time, developed into a major aerospace firm whose products include electric lighting, ventilation units, and braking systems for aircraft and also starter motors for aircraft engines of the type GE builds. The deal was approved in the United States. However, in July of 2001, the European Commission following the recommendation of Competition Commissioner, Mario Monti, blocked the merger.

The proposed GE-Honeywell merger was a marriage of firms making complementary products. The more aircraft engines GE sells, the more starter motors and other related aircraft items Honeywell could sell. As a result, the proposed merger of GE and Honeywell can be thought of as being equivalent to a vertical merger. Most often vertical mergers combine firms operating at different levels of the production chain, say, a wholesaler and a retailer. However, the connection between an upstream and a downstream ...