Honeywell reviews aerospace split: Strategic alternatives under evaluation

Honeywell International is considering the possibility of separating its aerospace business, approximately a month after the activist investment fund Elliott Investment Management pressured the board to devise a plan to split the company into business units.

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The company, headquartered in Charlotte, North Carolina, stated that its board of directors continues to evaluate strategic alternatives and will provide an update on its portfolio review alongside its fourth-quarter results in early 2024.

“Honeywell is now well-positioned for significant transformational alternatives, and we are diving deeper into exploring their feasibility and possible timeline,” stated Vimal Kapur, the company’s chairman and CEO.

In November, Elliott revealed it had acquired a $5 billion stake in Honeywell and proposed breaking up the conglomerate, arguing the need to optimize its value. The company has maintained a resistant stance toward similar campaigns, as was the case in 2017, when it rejected a similar proposal.

Nevertheless, Honeywell shares have underperformed the market so far this year, with growth of 8.5%, compared to the 28% of the S&P 500 index. Following Monday’s announcement, Honeywell shares rose 3.2% in pre-market trading.

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Aerospace business and current structure

The aerospace business accounts for nearly 40% of Honeywell’s annual revenue, with the production of engines and cabin systems for manufacturers like Boeing.

In October, the company lowered its annual sales forecast due to reduced demand for smart energy products and weak results in its industrial automation and construction units. These challenges have impacted its earnings.

Prior to Elliott’s intervention, Honeywell had already begun a restructuring process to focus on three key trends:

• Aviation
• Automation
• Energy transition

Among its most recent moves:

• In October, it announced a plan to separate its advanced materials business, valued at $10 billion.
• Later, it sold its personal protective equipment division for $1.33 billion in cash to a private equity firm.

Marc Steinberg and Jesse Cohn, partners at Elliott, stated on Monday that separating the aerospace business is the right path. “We look forward to the prompt conclusion of the review and to supporting Honeywell in implementing the necessary steps to maximize its value,” they emphasized in a statement.

Honeywell will present the results of its review next quarter, a key update that will determine whether its aerospace business will be separated from the rest of the company or if alternative measures will be chosen.