Honeywell International, the well-established industrial conglomerate, has announced plans to separate its operations and create three distinct publicly traded companies. The strategic move, unveiled on Thursday, aims to streamline operations and strengthen the company's focus on automation, aerospace, and advanced materials.
The separation will result in the formation of Honeywell Automation, Honeywell Aerospace, and Advanced Materials. Each new entity will operate under its own distinct strategy, aligning with the company's goal to optimize growth opportunities and increase shareholder value. The split is expected to be completed by the second half of 2026.
According to CEO Vimal Kapur, "The formation of three independent, industry-leading companies builds on the powerful foundation we have created, positioning each to pursue customized growth strategies and unlocking significant value for shareholders and customers." This announcement arrives on the heels of growing pressure from Elliott Investment Management, which recently acquired more than $5 billion worth of Honeywell shares and urged the company to reconsider its structure.
Honeywell Automation will focus on the rapidly growing industrial automation market. Boasting projected revenues of $18 billion for 2024, it aims to leverage advanced process technology, software, and AI solutions to promote productivity, sustainability, and safety across various sectors.
Meanwhile, Honeywell Aerospace is set to become one of the largest technology and systems suppliers for both commercial and defense aircraft. Expected revenues stand at $15 billion for 2024, with the segment catering to significant clients such as Boeing and Airbus. The company provides pivotal systems including aircraft propulsion, cockpit and navigation systems, and auxiliary power systems.
The Advanced Materials division, which had revenues nearing $4 billion last year, will concentrate on specialty chemicals and materials with a strong emphasis on sustainability. Its spin-off from the main company is projected to be finalized by the end of 2025 or early 2026.
Honeywell’s decision to break up follows similar moves by other industrial giants, including General Electric, which took steps last year to simplify its operations. Analysts argue this trend among conglomerates reflects a larger effort to boost competitiveness and operational efficiency, thereby providing shareholders with improved returns.
Goldman Sachs served as the lead financial adviser for Honeywell's strategic review, with Centerview Partners also providing counsel. Skadden, Arps, Slate, Meagher & Flom was tasked with external legal guidance.
Despite the strategic blueprint laid out, Honeywell’s stock faced volatility following the announcement. Shares fell by about 4% during early trading, as investors reacted to the company’s lukewarm profit and revenue forecasts. Over the past year, the company's shares have gained approximately 10%, underperforming against the S&P 500 index.
Kapur expressed his commitment to realigning Honeywell's business segments to respond more effectively to prevailing megatrends such as energy transition and digitalization. He emphasized, “Our simplification of Honeywell has rapidly advanced over the past year, and we will continue to shape our portfolio to create greater shareholder value.”
The planned separation will follow customary regulations and require board approvals. Each new entity is expected to maintain strong investment-grade credit ratings, ensuring their financial flexibility to execute future growth strategies.
Referring to the forthcoming changes, Marc Steinberg and Jesse Cohn of Elliott Investment Management suggested the split could yield "valuation upside" for Honeywell’s shareholders. They indicated strong institutional support for the restructuring and expressed confidence in management’s capacity to execute these plans effectively.
With this bold restructuring underway, Honeywell aims to address distinct market opportunities and operational challenges more efficiently, potentially improving both market responsiveness and innovation across its formerly consolidated divisions.
Industry observers will be watching closely as Honeywell transitions through this significant corporate restructuring, which is anticipated to shape the future dynamics of the industrial sector.