In October General Electric’s much-admired chief executive Jack Welch stunned the business world when he announced that GE had reached an agreement to acquire Honeywell—and that he was delaying his anticipated retirement to stay on and manage the integration of the two companies. The merger was to be the crowning achievement in a long and illustrious career.

But last week the European regulators dealt and embarrassing defeat to Welch and a deathblow to the $41 million merger, already approved by antitrust officials in this country. The decision marked the first time European Commission regulators had blocked a deal involving two U.S. companies, and sparked an angry response on this side of the Atlantic.

The Justice Department antitrust chief, Charles James, attacked the decision, saying it marked “a significant divergence” between antitrust policy on this side of the Atlantic and in Europe. Treasury Secretary Paul O’Neill went further, describing the decision as “off the wall.” Others suggested the EC was now using antitrust policy as an instrument of protectionism and Senator Jay Rockefeller, head of the aviation subcommittee, has already made thinly veiled threats about blocking mergers between European companies in retaliation.

But in reality the EC’s decision to block the deal was simply another reflection of the fact that not everyone shares America’s values, and particularly its belief in unfettered capitalism. And as companies become increasingly global, it is becoming increasingly apparent that they will need to better understand and better respond to the values of citizens in Europe and the Asia-Pacific, where they will be held to different standards of behavior.

While critics of the EC’s decision have stolen most of the headlines, many observers are critical of the way GE and Honeywell handled the deal, suggesting the companies might have taken the EC’s approval for granted.

“My sense is one of the reasons why this has gone so badly wrong is that the parties didn’t do their homework,” says Wharton a professor of legal studies Edward Swaine, who has conducted research on international antitrust law. “I think it’s odd if GE and Honeywell were surprised by the road the EC took. I don’t agree with the EC on the substance of its decision, but I can’t say I was terribly surprised.”

Other observers say the same thing, pointing to the EC’s increasingly activist role in international mergers and acquisitions.

“The EC has had the power to examine multinational mergers for about 10 years,” says Brad Staples, chairman of the European operations of APCO Worldwide, an international public affairs firm. “Its involvement is triggered once a deal reaches a certain size. The first trans-Atlantic case that raised real concerns here was the Boeing-McDonnell Douglas merger.” APCO has counseled the parties to several major mergers, including Coopers & Lybrand-Price Waterhouse, Time Warner-EMI, Grand Metropolitcan-Guinness, and Worldcom-Sprint.

While the Boeing-McDonnell Douglas deal went relatively smoothly, the EC raised objections to the AOL-Time Warner merger, focusing on Time Warner’s apparent dominance in the European music business—although the deal was eventually allowed to proceed. It has also focused increasing scrutiny on Microsoft.

“I don’t think American companies can claim to be surprised by the level of scrutiny at the EC level,” says Staples. “That might have been the case five years ago, but not today. We are getting called in much earlier in the process to manage the environment. There was a time when companies would wait until the deal faced serious problems before they called us in. Now we are part of the team with the law firms and the investment banks.”

Others are not so sure, however. According to Paul Adamson, who heads the Brussels operations of BSMG Worldwide, “The process is theoretically more political here than it is in the U.S., but there is still no automatic reflect to use communications people to leverage public opinion. When companies hire a legal team, there’s no spontaneous suggestion that they should also hire a public affairs firm. But one lesson from the GE-Honeywell deal is that public affairs people need to be as much a part of the team as legal advisors.”

Certainly there is a growing pool of public affairs talent in Brussels focused on the M&A arena. In addition to top-tier multinational agencies such as APCO, BSMG and Hill & Knowlton, British financial communications specialists such as Brunswick and Financial Dynamics are very active in the international M&A business.

And while politicians in this country have suggested that EC competition chief Mario Monti based his decision in the GE-Honeywell case on the protectionist pleas of European companies, experienced EC-watchers don’t buy it.

“Based on what I know, I think the EC’s decision was substantively incorrect,” says Swaine. “But I am dubious of suggestions that there was something particularly untoward about the process: that the EC was listening to GE’s competitors too much, that there was anti-Americanism, and that the EC was developing a new antitrust theory. I think all of those claims are incorrect.”

Staples agrees. “I think complaints about protectionism are overstated,” he says. “Many of the complainants in these cases are U.S. companies. They have chosen to come to Europe to raise objections because they know they are likely to get a more aggressive investigation here. I think the competition commissioner is very even-handed when dealing with U.S. companies, but the philosophical approach is different than in the U.S.”

In fact, Monti was constrained by EC competition law, which says the commission “shall take into account… the interests of the intermediate and ultimate consumers” (language that reflects the U.S. antitrust laws) but then goes on to state that if a merger “creates or strengthens a dominant position as a result of which effective competition would be significantly impeded,” it should be rejected. In the case of GE and Honeywell, the commission was concerned about bundling, the potential for GE to tie two core products—GE jet engines and Honeywell avionics—into a single package and sell it at a lower price than competitors could match.

In a statement, Monti said: “The merger between GE and Honeywell, as it was notified, would have severely reduced competition in the aerospace industry and resulted ultimately in higher prices for customers, particularly airlines”

Criticism of the EC way of doing things has focused on the fact that it takes into account the impact of a deal on competition as well as the impact on consumers—that the EC in effect protects rival companies as well as consumers. Leaving aside the argument that the EC approach simply takes a longer view—that any deal that diminishes competition will ultimately harm consumers—what the EC is really doing is accepting input from a wider range of stakeholders. In addition to consumers, it listens to the concerns of employees (particularly organized labor), communities (as represented by activist groups), and shareholders in companies that might be affected by the merger.

That’s a reflection of the different values that govern the business realm in Europe—values that American companies doing business overseas need to understand and accommodate.

There are also differences in the antitrust process, and they too make proactive communication even more important than it is in this country.

“One of the differences is that decisions here are made by political appointees, rather than in the judicial realm,” says Staples. “That means they can be influenced by the political context and that the level of debate and public dialog is higher than in might be in the U.S.”

That means a broader role for public relations and public affairs executives, he says. Still, most clients look to PR firms not to attract more attention to the deal but to make sure the right messages reach the right, highly targeted audience.

Says Staples, “To handle this process as smoothly as possible, companies have to contain and manage information about the deal and create space so that the merits of the deal can be properly scrutinized. Too much media attention can lead to increased political intervention, and that’s something you want to avoid.

“At the same time, Brussels is now home to the world’s largest press corps. The press knows the process intimately, and follows a case like this line-by-line. They have strong relationships and privileged access to regulators, and they are capable of getting hold of information about the details of these cases and understanding what that information means. At the same time, the commission has learned to manage its relationship with the media, and to manage the release of information.”

Under the circumstances, it might be time to question whether containment is the correct communications strategy. With so many parties involved in the process, companies may have to stop playing defense—hoping questions about the impact of their deals on various stakeholder groups will simply go away—and start playing offense, explaining why consolidation has benefits for all parties.