Honeywell International Inc on Tuesday said it would pare its focus to four business lines, including aerospace, and spin off two businesses with US$7.5 billion in revenue to help fund acquisitions.
The reorganization, which reduces revenue by about 18 percent, would simplify Honeywell’s broad portfolio, boost growth and give shareholders a tax-free benefit from the new companies, Honeywell chief executive officer Darius Adamczyk said on a conference call on Tuesday.
It would also give the diversified manufacturer the scope to change its remaining portfolio along the lines sought by hedge fund Third Point Capital, which agitated for a spin-off of aerospace.
Third Point on Tuesday said it was pleased with the changes and backed Adamczyk’s leadership, though it wants him to keep improving the portfolio.
Adamczyk said there would be more to come, saying the two new businesses “can grow at an accelerated rate.”
The remaining businesses — aerospace, commercial building products, performance materials and safety products — are candidates for more acquisitions, he added.
“I’m very excited about M&A [mergers and acquisitions] 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 praised the moves, but said Honeywell had more changes to make, and warned that aerospace, with products ranging from jet engines to airplane Wi-Fi systems, may need to merge to gain the size to compete with larger rivals.
A spin-off or merger with General Electric Co’s aerospace unit would make Honeywell a stronger competitor to United Technologies and a “more powerful supplier to Boeing Co and Airbus SE,” Melius Research analyst Scott Davis said in a note. “That’s a deal worth thinking about.”
Adamczyk played down such speculation in a later interview.
“The way we compete in aerospace is not through scale,” he said. “We are going to compete through technology differentiation.”
Though his comments pointed away from a big deal, Honeywell sought to gain size last year with a US$90.7 billion bid for United Technologies Corp under prior CEO David Cote.
Industry experts say Honeywell’s poor record on aerospace parts quality and delivery could hamper its ability to win new orders.
Honeywell shares ended Tuesday down 0.2 percent in New York trading, after falling 2.3 percent initially.
Adamczyk, like his peers at other industrial conglomerates, has been under pressure to reorder a portfolio of disparate businesses that includes automotive turbo chargers, burglar alarms and Xtratuf boots popular in Alaska’s fishing industry.
Third Point had said since April that a spin-off of aerospace, which accounted for about 38 percent of revenue last year, could generate US$20 billion in shareholder value.
However, Adamczyk took a different route, splitting off the home and ADI global distribution businesses, wholesale distributors of security, fire and environmental systems for homes and commercial buildings, into a public company that is to absorb some of US$554 million in environmental liabilities.
Honeywell is to also spin off a transportation business that makes automotive turbo chargers into a second company that would absorb some of US$1.54 billion in old asbestos liabilities.
The amounts are to be determined later, Adamczyk said.
The auto parts move follows other companies, including auto supplier Delphi Automotive Plc, that are shedding technology tied to the internal combustion engine as regulators around the world crack down on emissions and talk of mandating a switch to battery-electric vehicles over the next two decades.
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