Bloomberg reports that Honeywell International Inc. (HON) is on the brink of a significant corporate restructuring, planning to divide into two separate publicly traded entities focusing on automation and aerospace and defense. This move comes after activist investor Elliott Investment Management, holding a substantial $5 billion stake, has been pressuring the company for such a split. The plan, as noted by the publication, could be formally announced alongside Honeywell’s fourth-quarter earnings, expected in early February, though final decisions are still pending board approval.
This potential breakup follows Honeywell’s earlier indication in December of exploring the separation of its aerospace business, aiming to streamline its operations around core competencies. The company’s shares reacted positively to the news, rising by as much as 5% to an intraday high of $228.97, which reflects investor optimism about the strategic shift. Despite this, Honeywell’s stock performance has not kept pace with the broader market, gaining only about 9% in the last year compared to the S&P 500’s (SPX) 21.83%.
The anticipated division of Honeywell could significantly benefit shareholders, with analysts like those at Barclays (BCS) estimating a sum-of-the-parts valuation reaching about $270 per share, based on expected free cash flows. This valuation is notably higher than Honeywell’s recent stock price, suggesting that the market might be undervaluing the conglomerate’s individual businesses. Jefferies Financial Group Inc. also highlighted the potential value of the aerospace segment, suggesting it could be worth over $90 billion on its own.
Bloomberg notes that the move by Honeywell is part of a broader trend where large industrial conglomerates are opting for breakups to unlock shareholder value and focus on niche markets. Notable examples include General Electric (GE), which has undergone its own restructuring by spinning off its health-care and energy divisions in recent years. Similarly, Honeywell’s previous engagements with activist investors, like Third Point LLC in 2017 pushing for an aerospace spinoff, indicate a long-standing dialogue on portfolio optimization.
Under CEO Vimal Kapur, Honeywell has already initiated portfolio reshaping, evidenced by plans to spin off the advanced materials division announced in October. This reflects a strategic vision to align the company more closely with megatrends like automation and aviation, potentially leading to more focused operations, clearer market positioning, and better financial performance.
However, the specifics of Honeywell’s breakup, including the exact structure, timing, and final strategy, remain fluid as the company continues its internal deliberations. Both Honeywell and Elliott have remained tight-lipped beyond their previous statements, underscoring the confidentiality and strategic nature of these discussions. This potential transformation could set a precedent for other conglomerates considering similar actions to enhance competitiveness and shareholder value in an increasingly specialized market environment.
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