Industrial giant Honeywell (HON) will be getting smaller.
Honeywell ended months of speculation on Thursday by announcing it would split into three companies: Honeywell Automation, Honeywell Aerospace and Advanced Materials. The automation business will stay focused on building automation technology, aerospace tech for plane cockpits and advanced materials solutions for sectors such as healthcare.
The separation is expected to happen in the second half of 2026.
"The formation of three independent, industry-leading companies builds on the powerful foundation we have created, positioning each to pursue tailored growth strategies, and unlock significant value for shareholders and customers,” Honeywell chair and CEO Vimal Kapur said in a statement.
Honeywell shares fell 3.8% in pre-market trading as investors digested the news.
For Kapur and Honeywell, the news is a defining moment.
Kapur joined Honeywell in 1989, rising through the ranks of the building automation business and assuming the CEO position in June 2023. He added the additional role of chairman in June 2024.
He's has been jumping headfirst into a complete overhaul of a company with roots in thermostats dating back to 1886. Honeywell has also built up through decades of acquisitions, starting with the 1999 merger with Allied Signal.
At a time when industrial conglomerates with economy of scale are no longer rewarded with high valuations, Kapur said in October 2024 that Honeywell would spin off its advanced material business. The new pubic company is slated to begin trading at the end of 2025 or early 2026. It boasts about $3.8 billion in annual revenue.
This after an otherwise successful breakup of industrial legend General Electric (GE) in 2024 into three independent companies.
"I think the biggest change I'm driving is how we make it a growth-oriented company, and part of that is how we transform our portfolio so that it's naturally pivoted towards end markets, products which are growth-oriented, but also change our own capabilities on new product development and innovation," Kapur told me at the World Economic Forum (WEF) in late January.
He said at the time a decision on the company's fate would be revealed on its day, February 6.
The operational upheaval Honeywell come amid pressure from feared activist investor Elliott Management, which has a stake of about $5 billion. The firm disclosed its investment in November.
"With today’s action, Honeywell will be separating its Automation and Aerospace businesses into two market-leading enterprises poised for sustained growth and value creation,” said Elliott partner Marc Steinberg and managing partner Jesse Cohn in a statement. “The enhanced focus, alignment, and strategic agility enabled by this separation will allow Honeywell to realize the opportunity for operational improvement and valuation upside. We look forward to continuing to support Vimal and the management team as they execute on the separation and deliver significant long-term value to Honeywell’s shareholders.”
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While the Elliott did put pressure on Honeywell, interactions were friendly from the get-go — something seen by Elliott not putting forth board members ala its campaign against airline Southwest (LUV), a source tells me.
JPMorgan industrials analyst Stephen Tusa estimates Honeywell could be worth $330 a share if broken up. The stock currently trades at about $212.
A source familiar with the transaction tells me the aerospace business alone could fetch a $100 billion market cap. Honeywell's total market cap stands at $144 billion, according to chof360 Finance data.
"So our processes and operating system works, but everything at a certain point gets mature, and there's an opportunity to relook at things, which I think is a fair question," Kapur said at WEF.
Brian Sozzi is chof360 Finance's Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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