WHEN: TODAY, THURSDAY, FEBRUARY 25
WHERE: CNBC'S "SQUAWK ON THE STREET"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Honeywell Legal Advisor Christine Varney, former Head of DOJ Antitrust today on CNBC's "Squawk on the Street." Following is a link to the video on CNBC.com: http://video.cnbc.com/gallery/?video=3000496807.
All references must be sourced to CNBC.
FABER: NOW, LETS GET TO HONEYWELL. HONEYWELL WANTS TO BUY UNITED TECHNOLOGIES BUT THAT COMPANYS CEO SAYS ITS NOT GOING TO HAPPEN. THE KEY REASON, CONCERN THE TWO COMPANIES OVERLAPPING PRESENCE IN AEROSPACE WOULD MOVE ANTITRUST REGULATORS TO BLOCK A DEAL. HONEYWELL DISAGREES AND BELIEVES ANTITRUST CONCERNS WOULD IN ITS WORDS NOT BE A MAJOR ISSUE. CHRISTINE VARNEY RAN THE JUSTICE DEPARTMENTS ANTITRUST DIVISION FROM 2009 TO 2011. SHE NOW HAS THE ANTITRUST PRACTICE AT CRAVATH, SWAINE & MOORE AND IS A KEY ADVISER TO HONEYWELL ON ITS ANTITRUST STRATEGY FOR THE UNITED TECHNOLOGIES DEAL. NICE TO HAVE YOU HERE.
VARNEY: GOOD MORNING.
FABER: GOOD MORNING. YESTERDAY, AIRBUS CEO COMES OUT AND SAYS I DO NOT SEE THAT SUCH A COMBINATION WOULD BE IN THE INTEREST OF AIRBUS. IM UNDER THE IMPRESSION THAT THE LEADERSHIP OF UNITED TECHNOLOGIES SHARES MY ASSESSMENT. BOEING SAYS HEALTHY COMPETITION IN OUR SUPPLY CHAIN IS VITALLY IMPORTANT TO BOEING AND OUR COMMERCIAL AND MILITARY CUSTOMERS AND THEY SAY WE WOULD ANTICIPATE TAKING A VERY CLOSE LOOK AT THE POTENTIAL IMPACT OF A POTENTIAL DEAL. IT DOESNT SOUND LIKE THE CUSTOMERS ARE IN YOUR CORNER.
VARNEY: WELL, I THINK ONCE WE GET STARTED IN TALKING THROUGH WHAT THE ISSUES ARE AND HOW EASILY THEYRE RESOLVED, EVERYBODY, INCLUDING UNITED TECHNOLOGIES WILL SEE THIS IS A VERY PRO-COMPETITIVE DEAL. YOU HAVE TO REMEMBER, HONEYWELL IS AN $80 BILLION COMPANY WITH A WIDE PORTFOLIO. UTC, GREAT COMPANY. A LITTLE BIT SMALLER, ALSO WIDE PORTFOLIO. THE OVERLAPS WERE TALKING ABOUT ARE SO SMALL AND SO NARROW IN AEROSPACE, THERES NO MORE THAN $5 BILLION OF OVERLAP WHICH IS EASILY DEALT WITH THROUGH DIVESTITURES. WHEN YOU ARE LOOKING AT A DEAL OF THIS SIZE WITH $3.5 BILLION IN SYNERGIES AFTER THE DIVESTITURES THAT IS GOING TO BE GREAT FOR ALL OF THE CUSTOMERS.
FABER: MANY PEOPLE COME BACK TO YOUR ASSERTION ABOUT POTENTIAL DEVESTITURES AND OVERLAP AND SAY WE DONT SEE THAT AT ALL. AND I WILL TRY AND QUOTE HERE FROM WHAT IS A NEURTAL SOURCE HAS BEEN COVERING THIS INDUSTRY FOREVER AT COWAN HE SAYS THAT THERES NO WAY THE LIKELY DIVESTITURES ARE THAT SMALL. HE COMES AT A 15-18 BILLION OF OVERLAPS AND THINKS THE DIVESTITURES WOULD BE FAR, FAR HIGHER. HOW DO YOU GET TO YOUR NUMBER WHEN OTHERS ARE SAYING THE NUMBER IS MUCH MUCH LARGER? AND JUST TO GIVE YOU SOME APUS, RAM AIR TURBINES, WHEELS, SENSORS, BIZ JET HELO ENGINES, NOT EVEN SURE I AM PRONOUNCING IT PROPERLY DIGITAL ENGINE CONTROLS, FUEL PUMPS, HE GOES ON AND ON.
VARNEY: SO I THINK ITS IMPORTANT TO REMEMBER BOTH COMPANIES HAVE INCREDIBLY STRONG PORTFOLIOS IN ADDITION TO THEIR AEROSPACE PORTFOLIOS. AEROSPACE, HONEYWELL, INCREDIBLY STRONG ON THE ELECTRONICS SIDE, UTC INCREDIBLY STRONG ON THE MECHANICAL SIDE. PUTTING THOSE TWO COMPLEMENTARY PORTFOLIOS TOGETHER AND DIVESTING THE OVERLAPS IS WHAT IS GOING TO GIVE US THE SYNERGIES. THE NUMBERS THAT HONEYWELL HAVE COME UP WITH ARE SOMETHING IM VERY CONFIDENT IN. HONEYWELL KNOWS HOW TO DO THIS. DAVE COTE IS A WORLD CLASS CEO. THEY HAVE CRUNCHED THE NUMBERS AND WHEN WE LOOK AT THE OVERLAPS, THEY ARE IN SMALL PROPULSION ENGINES, AUXILIARY POWER UNITS AND ENVIRONMENTAL CONTROLS. THOSE ARE THE PRINCIPLE AREAS OF OVERLAP. THERES SOME OVERLAP IN THE BUILDING CONTROLS SIDE, DE MINIMIS. I DONT THINK ANYBODY THINKS THATS A PROBLEM. BUT WHEN YOU LOOK AT THE SMALL PROPULSION ENGINES, THE APUs AND THE ENVIRONMENTAL CONTROLS IN APUS AND THE PROPULSION ENGINES THESMALL ENGINES, THERES ABOUT SIX PLAYERS IN THAT SPACE RIGHT NOW. POST DIVESTITURE THERE WOULD STILL BE SIX PLAYERS IN THE SPACE. GE, ROLLS, WILLIAMS TO NAME A FEW. THATS A PRETTY EASY DIVESTITURE. ITS VERY IDENTIFIABLE. SOMETHING BOTH THE CUSTOMERS AND THE ANTITRUST AUTHORITIES ARE GOING TO BE EASY TO DIGEST. ITS A VERY STRAIGHTFORWARD DIVESTITURE.
FABER: THIS ENVIRONMENT SEEMS TO BE TOUGHER THAN IT MIGHT HAVE BEEN EVEN WHEN YOU WERE RUNNING THE ANTITRUST ENFORCEMENT DIVISION AT DOJ. IM JUST THINKING, I COVER M & A, ODP STAPLES IS BEING CHALLENGED AND THEY ARE GOING TO COURT HALLIBURTON, BAKER HUGHES HAS BEEN A REALLY LONG SLOG. UNCLEAR WHERE THATS GOING TO END UP. GE WAS PREVENTED FROM DOING A DEAL WITH ELECTROLUX FOR ITS APPLIANCES UNIT. ARE YOU SURE YOU ARE PROPERLY ACCUSTOMING YOUR CLIENT TO THE CURRENT CONDITIONS WHERE M & A WHEN IT EVEN COMES CLOSE TO POTENTIALLY PUSHING THE LINES SEEMS TO BE SOMETHING THE ANTITRUST ENFORCEMENT DIVISIONS ARE SAYING NO.
VARNEY: I AM 100% POSITIVE THIS DEAL IS DOABLE WITH THE PACKAGE OF DIVESTITURES I'VE TALK ABOUT.
FABER: HOW, WHY?
VARNEY: WHEN YOU LOOK AT THE DEALS THAT DONT GET DONE, WHAT PRINCIPALLY HAPPENS IS THE PARTIES DONT UNDERSTAND THEY REALLY DO HAVE TO DIVEST OVERLAPPING ASSETS. THEY CANT MAKE ARGUMENTS THAT OTHERS WILL COME IN AND REPOSITION, OTHERS WILL COME IN AND ENTER. DEALS THAT GET DONE ARE THE DEALS THAT WALK IN THE DOOR WHERE THE CEOs HAVE PUT ON THE TABLE HERE ARE THE OVERLAPPING ASSETS, THEY ARE GOING TO BE DIVESTED. THEYRE GOING TO BE DIVESTED TO A CREDIBLE BUYER. COMPETITION IS GOING TO BE MAINTAINED. THOSE DEALS GET DONE. LOOK, DAVID, IVE LOOKED MANY CEOs IN THE EYES AND TOLD THEM YOU CANT DO THIS DEAL. THIS IS NOT ONE. THIS IS A TOTALLY DOABLE DEAL.
FABER: IT'S FUNNY BECAUSE HALLIBURTON BAKER HUGHES, AS FAR AS I KNOW, I HAVE NO IDEA IF YOURE INVOLVED.
VARNEY: IM NOT.
FABER: GOOD THEY WALKED IN WITH A DIVESTITURE PACKAGE AND THEY'VE BEEN SLOW WALKED FOREVER HERE AND NOTHING IS GETTING DONE.
VARNEY: I THINK THAT SOME DIVESTITURES ARE MORE COMPLICATED THAN OTHERS. I THINK THATS A POTENTIALLY A COMBINATION WHERE YOU HAVE SO MANY DIFFERENT PIECES THAT ARENT COHERENT, A LOT OF POTENTIAL DIFFERENT BUYERS. ITS A LITTLE BIT MORE COMPLEX. I DONT HAVE ANY REASON TO BELIEVE THAT DEAL WONT GET DONE. I THINK ITS A QUESTION OF FINDING THE RIGHT BUYERS FOR THE ASSETS AND PUTTING IT ALL TOGETHER. THIS DEAL, WE HAVE A MUCH SMALLER GROUP OF ASSETS. THEYRE VERY SYNERGISTIC. ITS VERY CONCEIVABLE THAT ON THE AEROSPACE SIDE YOU GET ONE OR MAYBE TWO BUYERS. THATS NOT A COMPLICATED DIVESTITURE.
FABER: WHAT ABOUT THE CUSTOMERS HERE? I MENTIONED AIRBUS IN PARTICULAR THE EU ALSO RULES ON THESE THINGS AND AS WE KNOW FROM GES ATTEMPT TO BUY HONEYWELL 16 YEARS AGO CAN SAY NO WAY NOW MARIO MONTI IS NO LONGER THE COMPETITION COMMISSIONER BUT SO WHAT AIRBUS IS A CUSTOMER THEY CARE ABOUT THAT. ARE YOU CONFIDENT THAT EU
VARNEY: I AM VERY CONFIDENT; YOU KNOW CUSTOMER CONCERNS ARE IMPORTANT BUT I THINK ONCE AIRBUS AND BOEING AND OTHER CUSTOMERS SEE THE SYNERGIES THAT WILL GO DIRECTLY TO THEIR BOTTOM LINE, 3.5 BILLION IN SYNERGIES WHEN AIRBUS AND OTHERS ARE UNDER SO MUCH COST PRESSURE IS REALLY GOING TO ACCRUE TO THEM AND ON THE EU THAT DECISION 16 YEARS AGO WAS ACTUALLY OVERTURNED BY THE COURT IN EUROPE IT WAS HELD UP ON A TECHINCALLITY BUT THE IDEA THAT YOU ARE SIMPLY TOO BIG HAS BEEN DISCREDITED BOTH IN EUROPE AND THE US AND I DON'T SEE THE DEAL FAILING FOR THAT REASON.
FABER: SO GIVEN YOUR CONFIDENCE, AND YOURS IS AN IMPORTANT VOICE HERE, WOULD YOU ADVISE YOUR CLIENT TO POTENTIALLY BE WILLING TO DO SOME THINGS TO DEMONSTRATE ITS WILLING TO TAKE ON THE RISK OF ANTITRUST, TO OFFER A LARGE BREAKUP FEE OR GO HELL OR HIGH WATER AS WE SAY IF IT WAS WILLING TO TRY AND FORGE A MERGER AGREEMENT?
VARNEY: I WOULD ADVISE MY CLIENT TO GET IN THE ROOM WITH UTC AND WORK OUT THOSE DETAILS. THIS IS A VERY DOABLE DEAL. THE FIRST STEP IS SITTING DOWN WITH THEIR ANTITRUST ADVISERS AND REALLY UNWINDING WHY THERES NO ANTITRUST ISSUE, THEN LET THE CEOS CUT THE DEAL.
FABER: WELL SEE IF IT MOVES FORWARD FROM HERE. BUT FOR NOW CHRISTINE VARNEY WE APPRECIATE YOU JOINING US.
VARNEY: THANK YOU, DAVID.
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