Honeywell considers strategic breakup, including aerospace spinoff
2min read Honeywell (HON) announced it is considering spinning off its high-performing aerospace business, a move driven by pressure from activist investor Elliott Investment Management. Elliott, which has amassed a $5 billion stake in the company, has advocated for breaking up Honeywell into two entities, separating the aerospace segment from its automation and energy businesses. The announcement has sparked optimism among investors, mirroring the success seen in similar moves by other conglomerates, such as General Electric (GE) earlier this year.
The aerospace segment, Honeywell's most lucrative division, has thrived due to robust post-pandemic demand for jet engines and aircraft components. For the first nine months of 2024, Aerospace Technologies reported a 15% revenue increase to $11.47 billion, with segment profits up 18% to $3.2 billion. By contrast, Honeywell's automation and industrial units have struggled, with revenue for Industrial Automation down 8.5% over the same period. This uneven performance has weighed on Honeywell's overall financial results and stock price throughout the year.
The potential spinoff aligns with Elliott’s argument that separating the businesses would unlock shareholder value, possibly boosting Honeywell’s share price by 51-75% over the next two years. Analysts estimate a standalone Honeywell Aerospace could have a market valuation between $90 billion and $120 billion, including debt. This valuation reflects the strength of its aerospace operations in a rapidly recovering aviation sector.
The news follows Honeywell’s divestiture of its Personal Protective Equipment (PPE) business for $1.25 billion in November, part of CEO Vimal Kapur’s broader strategy to simplify the company and focus on three megatrends: Automation, Future Aviation, and Energy Transition. Honeywell also plans to spin off its Advanced Materials business by the end of 2025, indicating a clear shift toward more streamlined operations.
Investor reaction to the announcement has been positive. Honeywell shares rose 3.8% in Monday trading, leading gains on the Dow Jones Industrial Average. The stock broke out above its October resistance level of $220.79, signaling bullish sentiment around the strategic review. This move contrasts with Honeywell’s underwhelming performance earlier in the year, with shares up only 12% year-to-date, primarily due to a Q4 rally.
Elliott Investment Management has played a key role in pushing Honeywell toward this potential transformation. The activist investor's November letter to the company argued that splitting the aerospace and automation businesses would allow each entity to focus more effectively on growth strategies and capital allocation. Elliott praised Monday’s announcement as a step in the right direction, reinforcing its support for CEO Kapur’s leadership during this strategic transition.
Looking ahead, Honeywell’s next update on its strategic review is expected alongside its fourth-quarter earnings release in late January. Investors will closely watch for details on the separation process, including the potential timeline, structure of the spinoff, and its implications for shareholder returns. The aerospace spinoff would not only create a new aviation pure-play but could also set the stage for further transformations within Honeywell's remaining business units.
The aerospace spinoff, if executed, could have implications for the broader industrial and aerospace markets. A standalone Honeywell Aerospace would be better positioned to compete with established players like GE Aerospace and Boeing (BA), potentially driving innovation and efficiency in the sector. At the same time, Honeywell's automation and energy units could pursue more targeted growth strategies, free from the capital demands of the aerospace division.
Honeywell’s strategic review underscores the ongoing trend of industrial conglomerates re-evaluating their business structures to maximize shareholder value. With parallels to General Electric's highly successful breakup earlier in 2024, Honeywell’s moves are expected to provide investors with significant opportunities for growth and portfolio diversification in the coming years.
