Elliott calls for Honeywell break up, takes $5 billion-plus stake

By Svea Herbst-Bayliss

(Reuters) -Activist investor Elliott Investment Management said Honeywell (NASDAQ:HON) should split into two separate businesses on Tuesday, following in the footsteps of other industrial conglomerates that have broken up in recent years.

Elliott said in a letter that it had built a stake worth more than $5 billion in Honeywell, one of its largest ever, and that management should split the company into two standalone businesses focused on aerospace and automation. Shares were up 3% on Tuesday, shedding some earlier gains.

“Over the last five years, uneven execution, inconsistent financial results and an underperforming share price have diminished its strong record of value creation,” Elliott said, while still praising the company’s products and technology.

Over the past five years, Honeywell’s stock has gained 28%, compared with a 94% increase in the broad-market Standard & Poor’s 500 index.

The Charlotte, North Carolina-headquartered company has been on a dealmaking spree since CEO Vimal Kapur took the helm last year. He has sought to shift the company’s focus to so-called megatrends of automation, the future of aviation and energy transition, and Honeywell has been selling assets that do not align with these trends.

But Elliott said Honeywell, an “iconic pillar” of American industry, would benefit from a simplified structure, similar to breakups of other industrial giants such as United Technologies (NYSE:RTX), GE and Ingersoll Rand (NYSE:IR).

A separation could create two sector leaders that could perform better and benefit customers, employees and shareholders, Elliott said. The firm has requested a meeting with the company, as well.

Elliott predicted a separation could push up the share price by 51% to 75% in the next two years, it said in its letter to Honeywell’s board.

Honeywell said it looks forward to engaging with the firm even though it had no prior knowledge of the investment.

Last month, the company announced plans to spin off its advanced materials unit into a publicly traded company. Separately, it also said it was looking to divest its personal protective equipment business.

Elliott told the company that after separating Aerospace, Honeywell Automation would be a stronger and better-run business valued at roughly $100 billion.

Elliott invests roughly $70 billion in assets and is one of the busiest and most powerful activist investors, having recently pushed for changes at Southwest Airlines (NYSE:LUV) and coffee chain Starbucks (NASDAQ:SBUX).

Elliott said its survey of industrial company shareholders shows a majority believe pure-play industrials perform better than diversified conglomerates.