Elliott Investment Management, a leading activist investor, has announced a $5 billion stake in Honeywell International Inc., urging the industrial giant to divide its operations into two separate entities: one focused on aerospace and the other on automation. Elliott argues that this move would simplify Honeywell’s structure, improve performance, and unlock significant shareholder value.
The recommendation comes amid concerns over Honeywell's performance in recent years. While the company has been recognized for its innovative products and technologies, Elliott cited "uneven execution and inconsistent financial results" as contributing factors to its underperformance compared to broader market indices. Over the past five years, Honeywell's stock has risen by 28%, lagging behind the 94% gain of the S&P 500 index.
A History of Transformation and Dealmaking
Since CEO Vimal Kapur's appointment last year, Honeywell has undertaken significant strategic shifts, focusing on megatrends such as automation, the future of aviation, and energy transition. The company has also engaged in asset sales that do not align with these core areas. Notably, Honeywell recently announced plans to spin off its advanced materials unit and explore divestment options for its personal protective equipment business.
Elliott, however, believes that a broader restructuring is necessary. Drawing parallels with successful splits by other industrial conglomerates like General Electric, United Technologies, and Ingersoll Rand, Elliott contends that separating Honeywell into two independent businesses would enable each to operate more efficiently, attract focused investments, and better serve stakeholders.
The Case for Separation
Elliott projects that a division of Honeywell could boost its share price by 51% to 75% within two years. It estimates that a standalone Honeywell Automation business could achieve a valuation of approximately $100 billion, while the Aerospace segment would become a leading pure-play company in its sector. Elliott also highlighted feedback from industrial company shareholders, noting a preference for specialized "pure-play" businesses over diversified conglomerates.
Next Steps
Elliott has requested a meeting with Honeywell's management to discuss its proposals. While Honeywell stated that it was unaware of Elliott's investment prior to the announcement, the company has expressed a willingness to engage with the firm.
The proposed split aligns with Elliott’s history of advocating for corporate transformations to drive value. The firm, which manages approximately $70 billion in assets, has recently pushed for changes at other major companies, including Southwest Airlines and Starbucks.
If successful, the separation would represent a significant milestone for Honeywell, reshaping its operations to align more closely with modern industrial trends and shareholder preferences.
