Justice Department Requires AlliedSignal and Honeywell to Divest Overlapping Businesses AlliedSignal

Justice Department Requires AlliedSignal and Honeywell to
Divest Overlapping Businesses

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AlliedSignal Inc. and Honeywell Inc. were ordered to divest
significant portions of their avionics—airplane electronics systems—businesses
in 1999 to resolve the Justice Department’s competitive concerns involving
their proposed $16 billion merger. Both companies are major providers of
avionics and other advanced technology products to a broad range of commercial,
space, and U.S. defense customers. The DoJ concluded that the transaction as
originally proposed would have been anticompetitive, resulting in higher prices
and lower quality for these products. The department’s Antitrust Division filed
a lawsuit and proposed a consent decree in U.S. District Court in Washington,
D.C., which, if approved by the Court, would resolve the issue. According to
the complaint, the proposed merger would have substantially lessened
competition in four product areas. In each of these product areas, the merger
would leave at most two or three major competitors. Consequently, the DoJ
alleged that these competitors would have been able to coordinate their pricing
and more easily increase prices for customers. Both AlliedSignal and Honeywell
agreed to divest specific product lines to comply with the consent decree.

Case Study Discussion Questions

1. Do you believe consent decrees involving the acquiring
firm to dispose of certain target company assets is an abuse of government
power? Why or why not?

2. What alternative actions could the government take to
limit market power resulting from a business combination?

3. Should the government be concerned about such factors as
job loss and disruption to communities that may result from the merger if the
merger is expected to result in improved overall efficiency for the combined
firms? Why or why not?

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