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Honeywell is exploring a spin-off of its aerospace business, a month after activist investor Elliott Management took its largest-ever position in the industrial conglomerate and pushed for it to break up.
Honeywell shares gained 3 per cent after the US-based group said it would consider jettisoning its aerospace unit, which manufactures parts for aircraft manufacturers including Boeing and Nasa. Honeywell shares have risen 11 per cent this year, underperforming the S&P 500.
“Honeywell is now well-positioned for significant transformational alternatives, and we are continuing our deeper, more granular exploration of their feasibility and possible timing,” said chief executive Vimal Kapur.
Elliott took a $5bn stake in Honeywell in November and called for the conglomerate to split in two, saying Honeywell should follow General Electric, 3M and Johnson Controls initiatives to shrink.
A separation of Honeywell’s aerospace business would result in a 75 per cent share price rise, Elliott partners Jesse Cohn and Marc Steinberg said. The potential split is “the right course for Honeywell”, the pair said after the announcement on Monday.
Honeywell, which has maintained a conglomerate structure even as they fell out of favour with investors, prompting competitors such as DowDuPont and United Technologies to split or spin off business units. Honeywell’s aerospace unit makes up about 40 per cent of the conglomerate’s revenue but trades at a discount to aerospace competitors such as TransDigm and Heico, a key issue in Elliott’s push for a separation.
Honeywell’s CEO signed off on more than $9bn worth of acquisitions this year to drive growth in three “megatrends”: automation, aviation and energy transition, even as the broader market for deals slowed. Honeywell bought Carrier’s security business Global Access Solutions for $4.9bn, and made a $1.8bn purchase of industrial gas conglomerate Air Products’ liquefied natural gas business.
At the same time, Kapur has also looked to simplify Honeywell’s corporate structure with several divestitures, but before Monday had opted against the more transformative split Elliott wanted. This autumn, Honeywell said it would spin off its chemicals and materials unit Advanced Materials and earlier sold its personal protective equipment business for $1.3bn.
Elliott has drawn on its $69bn in assets to make several multibillion stakes this year, amassing positions in chipmaker Texas Instruments, coffee chain Starbucks and Japanese conglomerate SoftBank. The US-based activist called for the removal of chief executives, such as at Southwest Airlines, but has thus far fallen short of calling for Kapur’s exit.
