On March 1, 2001, Jessica Gallinelli, managing director of Bancroft Capital Management, heard surprising and somewhat disturbing news about the proposed bid by General Electric Company (GE) for Honeywell International Inc. Despite recent public assurances about the deal from GE's chairman and chief executive officer (CEO), John F. “Jack” Welch Jr., the antitrust regulatory authority of the European Commission (EC) announced it had initiated a review of the proposed merger. Gallinelli, whose fund owned a large stake in Honeywell, considered this major development and wondered whether Bancroft should alter its investment. Immediately, Gallinelli instructed her associate to provide background material on the merger, an assessment of the probability the merger would be approved by antitrust regulators in the U.S. and Europe, and valuation analyses to assist Gallinelli in assessing Bancroft's investment in Honeywell. She would need to decide quickly whether to hold or sell her fund's 10 million shares in Honeywell and short position of 10 million shares in GE. As a risk arbitrageur, she thought prices would respond rapidly to the EC's announcement. She remembered Jack Welch's confidence of five months earlier that this was the “cleanest deal you'll ever see,” and she wondered whether that was still the case.
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