Nixing Merger Plans, Honeywell Sets Sights on Rivals

MORRIS PLAINS, N.J. (CN) – A week after suing to prevent the merger of two of rivals, Honeywell International backed out of a merger of its own over potential snags with antitrust regulators.

The $90 billion proposed merger with United Technology, something considered for nearly two decades and proposed again by Honeywell in spring 2016, would have created a nearly $200 technology company.

Though United initially appeared amicable to the merger, Honeywell officially ended the courtship Tuesday after months of waning interest by United.

“It ain’t gonna happen,” United Technologies CEO Gregory Hayes said repeatedly during a Feb. 22 interview with CNBC after the company rebuffed an updated proposal that reportedly included $108 per share.

Hayes noted that outside legal experts found the merger would lead to as much as $2 billion to $3 billion in synergies between the two companies.

When United first spoke out against the deal in September, it cited regulatory concerns and customer backlash.

The company released a statement Wednesday welcoming Honeywell’s surrender, calling it “the appropriate outcome given the strong regulatory obstacles, negative customer reaction, and potential for a protracted review process that would have destroyed shareholder value.”

Boeing, Airbus and other rival technology and aerospace companies had vowed to oppose the merger.

Honeywell on Wednesday said it “strongly disagrees with United Technologies’ characterization of the regulatory and customer risks associated with the transaction.”

“We made a full and fair offer that would have greatly benefited both sets of shareholders,” Honeywell CEO David Cote said in the statement. “However, continuing to try to negotiate with an unwilling partner is inconsistent with our disciplined acquisition process.”

Honeywell’s failed merger follows its own antitrust concerns over a proposed merger between two smaller rivals that offer remote security-alarm services.

In a complaint filed on Feb. 23 with a federal judge in New Jersey, Honeywell called Icontrol Networks Connect June 2016 offer to acquire Alarm.com Holdings a “classic violation of antitrust law.”

Honeywell – which also sells electronic security systems, besides airplane parts, thermostats and barcode scanners – controls just 12 percent of the remote security-system market.

With Alarm.com’s 38 percent share and Icontrol’s 32 percent, the $140 million merger would give Alarm.com a combined 70 percent share, according to the complaint.

If the combined company starts fixing prices on their remote services, Honeywell notes, security-system dealers would have trouble switching to vertically integrated companies like Honeywell that offer security services using only its proprietary software.

Honeywell has purportedly investigated moving into “open architecture” security systems, like those offered by Alarm.com and Icontrol, which can be used by any remote-security provider. It said the Alarm.com-Icontrol merger would corner the open-architecture market with third-party manufacturers.

 “No third party player could risk its business relationship with the firm controlling 100 percent of the open architecture space,” the 26-page complaint states. “The merged firm would be able to exercise its influence unchecked to bind third parties to its platform to the exclusion of any potential rival.”

The merger would also weaken Honeywell’s relationship with security system dealer ADT, which also sells Honeywell security systems.

Honeywell quoted Alarm.com as saying that, if the merger is successful, it has a deal in the works to make it the exclusive provider of remote services for ADT for the next five years.

Such a deal would allegedly force Honeywell to undergo the costly process of establishing interoperability with the new Alarm.com software and would lead to a “downward spiral” in which Alarm.com could “squeeze out” Honeywell from the market.

Alarm.com and Icontrol were scheduled to complete their merger today, but an injunction by U.S. District Judge Madeline Arleo in Honeywell’s complaint delayed it until March 3.

Honeywell is experienced at fending off antitrust lawsuits from security-software rivals.

AlarMax Distributors claimed in a suit last year that Honeywell violated a 2004 supply agreement for fire and security products. That settlement stemmed from allegations that Honeywell tried to purge AlarMax from the market by denying it access to security products.

Honeywell has filed motions to dismiss AlarMax’s suit, which it says lacks merit.

The company also faced charges that it violated antitrust law by stifling competition in the market for aircraft auxiliary power units. The Ninth Circuit ruled last September that Honeywell did not violate antitrust law.

In 2014 European Commission regulators objected to a pact between Honeywell and DuPont that may have limited the availability of a new refrigerant for air conditioning systems.

Honeywell is represented by Guy Amoresano of the Newark firm Gibbons PC.

Scott McBride of Lowenstein Sandler in Roseland, N.J., represents Alarm.com, and Icontrol is represented by Tonia Oullette Klausner with Wilson Sonsini Goodrich & Rosati in Manhattan.

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