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Honeywell International is doing everything it can to rehabilitate the idea of the industrial conglomerate. Elliott Management, an activist investor, has other ideas.
Elliott has accumulated 5 billion dollars – or 3 percent – stake in the $151 billion conglomerate. It calls for the company, which makes everything from cockpit controls to warehouse robots, to split into two separate businesses: one focused on aerospace and the other on automation.
Honeywell doesn’t seem to have understood that conglomerates have become painfully unfashionable. At a time when the global trend is for industrial empires to break up and generate returns by specializing in a single area of business, boss Vimal Kapur has been bulking up.
In fact, in just 17 months in office, he has spent nearly $10 billion on acquisitions, including a $5 billion investment in Carrier Global’s security access business.
Kapur sticks to the idea that Honeywell can prosper as a conglomerate by shedding slower-growing, low-margin companies and buying higher-growing ones. In addition to the acquisitions, it has announced plans to spin off its advanced materials unit into a publicly traded company and is looking to sell its personal protective equipment business.
Still, Honeywell’s financials suggest it’s time to do something more decisive. Its $5.7 billion in profits and $37 billion in revenue last year are less than what it made in 2019. Honeywell shares have lagged the broader market this year. Before the news of Elliott’s involvement, shares had risen just 12 percent, while the S&P 500 gained 26 percent.
Compare that to General Electric, a conglomerate that did get the message that smaller is better. In fact, GE shareholders have enjoyed a 160 percent return since restructuring chief Larry Culp announced a three-way spinoff in November 2021, Lex estimates. That beats the S&P 500 Index’s 27 percent gain and Honeywell’s 2 percent gain over the same period.
Elliott argues that a divided Honeywell would be more valuable. The manufacturing of aircraft engines has little in common with the manufacturing of electronic door locks. The aerospace industry operates on decade-long timeframes, while the automation business requires a shorter-term perspective.
Activists also estimate that a split could send the stock price up 51 to 75 percent over the next two years. Jefferies and Deutsche Bank’s sum-of-the-parts analysis suggests more modest advantages. But if mergers and acquisitions return with a vengeance under Donald Trump, a breakup could lead to future deals, with Honeywell pieces as targets. Honeywell Aviation could be a good fit for GE Aviation, for example. The pressure to reduce oneself to greatness will be difficult to resist.