(Bloomberg) -- Elliott Investment Management has built a $5 billion-plus position in Honeywell International Inc. and is pushing the industrial giant to pursue a break up.
The activist investment firm wants Honeywell to separate into two standalone companies, one focused on aerospace and the other on automation, according to a statement on Tuesday that confirmed a Bloomberg News report.
In a letter to Honeywell’s board, Elliott partner Marc Steinberg and managing partner Jesse Cohn wrote that “uneven execution, inconsistent financial results and an underperforming share price” have hurt the company’s record of value creation over the last five years.
“We believe these challenges have a clear cause and a straightforward solution,” Steinberg and Cohn wrote. “The conglomerate structure that once suited Honeywell no longer does, and the time has come to embrace simplification.”
Over the past five years, the Charlotte, North Carolina-based company has lagged its peers, with its stock rising about 30% compared with the roughly 76% gain for the S&P 500 Industrials Sector index. Shares in Honeywell rose as much as 7.8% on Tuesday, the biggest intraday gain in about four years. The stock was up 4.8% at 9:59 a.m. in New York, giving the company a market value of about $153.5 billion.
A spokesperson for Honeywell said in a statement that the company welcomes investor feedback as its continues to execute a disciplined strategy of sustainable growth, portfolio optimization and capital deployment. “Although Elliott had not made us aware of their views prior to today, we look forward to engaging with the firm to obtain their input,” the spokesperson said.
‘Simplified Strategies’
The investment is the largest ever in a single stock by Elliott. It’s now among the top five shareholders in Honeywell, one of the few major US industrial conglomerates that’s still largely intact. Honeywell’s main business operations span aerospace, energy and building and industrial automation. It announced a month ago that it’s spinning off its advanced materials division to streamline its holdings.
“As independent entities, Honeywell Aerospace and Honeywell Automation would benefit from simplified strategies, focused management, improved capital allocation, better operational performance, enhanced oversight, and numerous other benefits now enjoyed by dozens of large businesses that have moved on from the conglomerate structure,” Steinberg and Cohn wrote.
Elliott believes a separation could result in a share price upside of 51-75% over the next two years.
A number of large industrial conglomerates have pursued high-profile breakups in recent years. General Electric Co. split itself into three parts by spinning off its health-care business in 2023 and its energy arm earlier this year.
Dan Loeb’s Third Point LLC built a stake in Honeywell in 2017 and called for the company to spin off its aerospace division. Former Honeywell Chief Executive Officer Darius Adamczyk instead spun off its Resideo Technologies Inc. thermostat, air filter and residential security system business and the Garrett Motion Inc. turbochargers unit.
“Since that first failed breakup push, Honeywell has trailed the S&P 500 by more than 80%, even after leadership and aggressive portfolio changes. Many peers have since broken up, spun off or sold business units to more effectively showcase operations driven by megatrends,” Joel Levington, director of credit research at Bloomberg Intelligence, wrote in a note on Tuesday.
“Honeywell remained true to its roots, making it stand out as too complex and one of the last remaining industrial conglomerates — and potentially creating event risk for stakeholders,” Levington wrote.
Elliott, which manages close to $70 billion in assets, has launched around a dozen campaigns this year and has been pursuing larger companies than it has previously.
The Honeywell investment easily beats Elliott’s earlier record — its $3 billion stakes in AT&T Inc. and SoftBank Group Corp., according to data compiled by Bloomberg. Southwest Airlines Co. avoided a proxy fight with Elliott last month after reaching an agreement that added six new board directors. The airline also announced that Executive Chairman Gary Kelly will accelerate his retirement.
Since Honeywell’s appointment of CEO Vimal Kapur last year, it has pursued several big acquisitions, including the $5 billion purchase of Carrier Global Corp.’s security unit completed in June. A month later, it agreed to buy Air Products & Chemicals Inc.’s liquefied natural gas unit.
Air Products is also facing the threat of a proxy fight after getting pressure from activist investors Mantle Ridge LP and hedge fund DE Shaw & Co.
--With assistance from Kiel Porter.
(Updates shares in fifth paragraph. Adds BI comment from 12th paragraph.)
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