Honeywell International Inc., (NASDAQ:HON), is under pressure after Elliott Management revealed that it owned a stake of more than $5 Billion in the industrial giant.
Elliott wants Honeywell’s Aerospace and Automation Divisions to be split. It believes this could create significant value and project up to a 75% increase in 2026.
Honeywell’s stock is at a record-high, which raises the stakes of this possible restructuring.
Elliott Management wrote to Honeywell Tuesday and argued that Honeywell’s conglomerate-style structure is no longer in its interests.
The activist investor said that the conglomerate structure which once worked for Honeywell is no longer suitable.
Honeywell believes separating its aerospace and automation business could improve operations and eliminate inefficiencies. This would ultimately increase shareholder value.
Honeywell acknowledged the proposal, and has confirmed it will work with Elliott Management. It is open to the views of its entire shareholder base.
The company’s performance has been below that of its peers due to a complicated corporate structure, poor communication and a lackluster investor relations.
Elliott has cited these problems, in addition to a challenging portfolio, for Honeywell’s lagged position on the market.
Honeywell’s performance, and Elliott’s reasoning for the split
Honeywell’s aerospace division has been consistently strong, according to Elliott.
The activist investor pointed out that Honeywell has only spent 10% of its mergers and purchases (M&As) budget on the division over the last two decades.
Aerospace continues to be a significant cash generator for the business.
Elliott claims that Honeywell’s split into two separate entities, each focused on automation and aerospace, would create two companies more focused with a potential for greater value.
The proposed separation is more possible because both divisions have their own CEOs and separate back-office operations.
Honeywell remains a good option for investors looking to earn income, with a yield of 1.93 percent.
Honeywell’s shares have received a “overweight rating” from Wall Street analysts, indicating their confidence in its long-term prospects despite recent difficulties.
HON’s M&A budget allocation hasn’t shown much wisdom
Elliott’s proposal is in line with the broader industrial trend, which sees conglomerates under increasing pressure to split up into smaller and more focused firms.
General Electric is a good example. In 2024, GE will split into three distinct entities, GE Aerospace (GE Aerospace), GE Vernova (GE Vernova), and GE Healthcare.
Elliott has pushed previously for a separation at Marathon Petroleum, underlining the activist investor’s advocacy for more efficient and streamlined business models.
Elliott’s letter added, “The route we suggest is not new and we are confident that others have suggested it already to Honeywell Board and Management.”
Honeywell believes, with the right execution, that its aerospace and automation business could be valued at more than 100 billion dollars as separate companies.
The pressure that Elliott Management will bring to Honeywell as it navigates through this crucial juncture is sure to continue debates on the future of conglomerates in the industrial sector and potential benefits from a more focused approach.
The post Elliott Management Targets Honeywell With $5 Billion Share, Pushes For Major Restructuring may be updated as new developments unfold
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