Case 49: General Electric's Proposed Acquisition Of Honeywell

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1. Jessica Gallinelli should hold position in Honeywell and take short position in General Electric Company (GE) simultaneously The main consideration in her decision is when she heard disturbing news about the proposed bid by General Electric Company (GE) for Honeywell International Inc. This merge is obviously an arbitrage opportunity. Generally and predictably, there will be different positions for the stock price tendency. For the target company, the stock price normally will increase whereas the stock price of the merger company is likely to drop after the announcement of acquisition released. Therefore, it would be the great opportunity for Gellinelli to buy Honeywell shares and short-sell in GE in order to take advantage of this…show more content…
of shares (million)) 100 $548.00 Total Assets of the Arbitrage Position $4,116.00 Short Position in Buyer Shares $4,708.00 Borrowed shares of Buyer ($4,708.00) Debt @ % Assets 70% $2,881.20 Capital Employed $1,234.80 Total Liabilities and Capital of the Arbitrage Position $4,116.00 Net Spread Calculation Gross Spread $614.00 -Interest @ 15% ($153.93) - Short Dividends Foregone ($0.00) + Long Dividends Received $0.00 Net spread $460.07 Days in holding period 130 Results Return on capital for holding period only 37% Return on capital annualized 105% 4. How will the market react to the news from antitrust regulators? GE has officially announced the merge and acquisition with Honeywell on October 22, 2000 and if it has been gone through, GE will be the biggest company in aerospace industry with more than 60% of total market share. Undoubtedly, GE will be more monopolists and may bring about the unfair competition with the rivals. Hence, both the United States (represented by the Department of Justice (DOJ)) and European countries (represented by the European Commission (EC)) have a "Antitrust Law ' subject to protect the merger

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