Honeywell, like many in the industrial sector, plans to narrow its focus and spin off two of its businesses.
The American conglomerate is under pressure from investors to streamline its portfolio, which includes businesses ranging from building automation systems and software, automotive products, industrial controls and aerospace systems to home goods and footwear. Hedge fund Third Point Capital has been especially vocal, specifically calling on Honeywell to spin off its aerospace business.
Instead, Honeywell plans to spin off its home products and global distribution business, and its transportation systems unit, which will become two separate publicly traded companies. Honeywell will retain the aerospace technology unit. Its spin-off of the transportation business, which makes automotive turbo chargers and other automotive products, mirrors moves by other companies such as Delphi Automotive to offload technology related to internal combustion engines.
“Today’s announcement marks the culmination of a rigorous portfolio review involving a detailed assessment of every Honeywell business. As part of that review, we analyzed numerous criteria, including growth outlook, financial performance, market dynamics, potential for disruption, and, most importantly, assessment of fit as a Honeywell business,” said President and CEO Darius Adamczyk.
Adamczyk expects the restructuring to simplify Honeywell’s broad portfolio and boost growth. According to the Reuters, it also “gives the diversified manufacturer scope to change its remaining portfolio” more in accordance with Third Point’s wishes. The hedge fund said it is pleased with the changes and supports Adamczyk’s executive leadership, but wants the improvements to continue.
Adamczyk has intimated that there could be further changes, and that the remaining business units, including aerospace, building technologies, performance materials and safety products, are candidates for more acquisitions. “I‘m very excited about M&A in all four of our businesses. And I think these two spins...give me a lot of different levers to invest our M&A dollars.”
Analysts reacted positively, but suggested that the aerospace unit may need to merge and bulk up, if it is to compete with larger rivals like United Technologies and become a “more powerful supplier to Boeing Co and Airbus SE,” said analyst Scott Davis of Melius Research. Honeywell made a $90-billion bid for United Technologies last year under CEO David Cote, who stepped down in March 2017. Adamczyk dismisses the idea. “The way we compete in aerospace is not through scale,” he said. “We are going to compete through technology differentiation.”
