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European Commission Initiates Probe Of Boeing Acquisition Of Hughes

The European Commission has initiated a four-month in-depth review into Boeing’s US$3.7 billion buyout of Hughes Electronic Corp.'s satellite-manufacturing business, delaying final approval of the deal for at least two more months. The commission said its initial review had shown the purchase could boost Hughes' leading position in geostationary Earth-orbit communications satellites by giving it access to sensitive information from Boeing about rival products, as well as take advantage of closer ties to Boeing's launch business.

The U.S. Federal Trade Commission is also scrutinizing the deal for antitrust concerns and has asked both companies to provide more information. The FTC is also concerned about the synergy between the companies' satellite and launching services.

Boeing competitors, Lockheed Martin and Arianespace, fear the acquisition would unfairly favor the company's launch business, Delta and Sea Launch, when selecting a launch service provider. This is ironic, since Lockheed Martin manufactures satellites, as well as provides launch services using both Atlas and Proton vehicles, and the Ariane rocket and Eurostar satellite bus were recently united in the same company by the creation of Astrium (later this summer, after the establishment of EADS this relationship will be even stronger).

While regulators are unlikely to block the deal, they could propose restrictions on how closely the satellite and launch units are allowed to work together. "…it will ultimately get through with perhaps some constraints on how they might operate," said Paul Nesbit, an analyst with JSA Research. The regulators “might require that there be a Chinese wall, so to speak, between the launch people and the satellite people."

Boeing had originally hoped to close the purchase by June. Hughes and Boeing maintain the satellite acquisition would not violate antitrust laws and expect approval by August, though the review initiated by the European Commission, may now delay the merger into early fall.

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May 29, 2000