The European Commission, a major entity of the European Union and acting under its merger regulations, announced it is conducting an "in-depth" investigation into Goodrich Corp's acquisition by United Technologies Corp.
"The commission's preliminary investigation indicated potential competition concerns regarding the markets for engine controls and AC power generators, where the parties would have very high combined market shares," the commission said in a statement. "The commission also has vertical concerns concerning the removal of Goodrich as an independent supplier of fuel nozzles and engine controls, as well as in the area of aftermarket services."
United Technology and Goodrich have said they expect the deal, under which Goodrich will become a UTC subsidiary, to close in the middle of this year. Goodrich shareholders, representing 75 percent of the company's outstanding shares, this month overwhelmingly approved the takeover under which they would receive $127.50 for each share held.
The total purchase price would come out to $18.4 billion.
"We are pleased by the support of our shareholders, which confirms our confidence in the significant value that this business combination will create for our investors," said Marshall Larsen, chairman, president and chief executive officer of Goodrich.
"We expect the increased global scale that this transaction provides will best position us for continued success and future growth across our many platforms."
Goodrich, which has headquarters in North Carolina, produces and markets systems and services to the aerospace, defense and security industries. Its main business areas are actuation and landing systems; nacelles and interior systems; and electronic systems.
UTC, which has its headquarters in Connecticut, produces a broad range of high-technology products and support services. Among its subsidiaries are Hamilton Sundstrand aerospace systems and industrial products; Pratt and Whitney aircraft engines; and Sikorsky helicopters.
The European Commission said starting the inquiry doesn't prejudge the final result of the investigation and that the commission conducting the review has until Aug. 9 to decide whether the proposed merger would "reduce effective competition in the European Economic Area."
"The aviation equipment industry is already concentrated and is characterized by high barriers to entry," said Joaquin Almunia, commission vice president in charge of competition policy. "We need to make sure that competition is preserved and incentives to innovate remain.
"We must also prevent a rise in input prices for aircraft and engine manufacturers as well as other aviation equipment suppliers."
The commission said its initial look at the proposed Goodrich-UTC merger indicated the transaction would lead to "very high market shares in the market for AC power generation, a market with high entry barriers where Goodrich appeared as the strongest contender to UTC's dominant position and as a potential partner for prospective entrants."
Also, it would concentrate the manufacturing and supply of engine control systems.
The removal of Goodrich as an independent supplier of engine controls and fuel nozzles could also result in higher input prices for engine manufacturers competing with Pratt and Whitney, a UTC subsidiary, particularly when switching suppliers would prove costly and time consuming, the commission said.