Honeywell spinning off two units worth $7.5B into standalone firms

By Lynda Cohen
Morris Plains | Oct 10, 2017 at 1:07 pm

Honeywell is spinning off two businesses worth about $7.5 billion into standalone, publicly traded companies, it announced Tuesday.

The Morris Plains-based company will separate its Homes and ADI global businesses, along with its Transportation Systems, in spinoffs to Honeywell shareowners that are tax-free for U.S. federal income tax purposes.

The changes are expected to be completed by the end of 2018.

The decision was made after “a rigorous portfolio review involving a detailed assessment of every Honeywell business,” Honeywell CEO and President Darius Adamczyk explained.

That included analyzing things such as growth outlook, financial performance, market dynamics, potential for disruption and assessment of fit as a Honeywell business.

“The remaining Honeywell portfolio will consist of high-growth businesses in six attractive industrial end markets, each aligned to global mega-trends, including energy efficiency, infrastructure investment, urbanization and safety,” Adamczyk said. “These businesses are best positioned to leverage Honeywell synergies from our technologies, financial and business models, and talent. Our simplified portfolio will offer multiple platforms for organic growth and margin expansion through further deployment of our world-class HOS Gold operating system and the Honeywell Sentience Platform. Honeywell will also have multiple levers for continuing to execute an aggressive capital deployment strategy, including a vigorous and disciplined M&A program.”

Honeywell is keeping its Aerospace and Performance Materials and Technologies business groups, which drove strong third-quarter results, with sale expected to be $10.1 billion, up 3 percent reported, with earnings per share at $1.75, up 9 percent reported.

The new Homes and Global Distribution business will cover home heating, ventilation and air conditioning controls, and security markets, along with distributing security and fire protection products. It’s expected to make about $4.5 billion per year, with approximately 13,000 employees.

The new Transportation Systems business will have turbocharger technologies with engineering capabilities for a broad range of engine types across global automobile, truck and other vehicle markets. Its annual revenue is expected to be around $3 billion, with about 6,500 employees.

The planned separations do not require a shareowner vote. But each will be subject to finalization of the contours of the spun-off business, assurance that the separation will be tax-free to Honeywell shareowners for U.S. federal income tax purposes, finalization of the capital structure of the three corporations, the effectiveness of appropriate filings with the U.S. Securities and Exchange Commission, final approval of the Honeywell board of directors, and other customary matters.

Gary Michel will serve as CEO and president of Honeywell’s Home and Building Technologies strategic business group, reporting to Adamczyk. Michel succeeds Terrence Hahn, who will move to a leadership role reporting to Adamczyk and will help prepare the Homes and ADI businesses for the spinoff.

“Gary has proven himself to be an innovative and energetic leader with a deep understanding of his customers and end markets and the ability to translate this knowledge into technology-differentiated offerings that bring value to customers,” Adamczyk said. “Gary is a welcome addition to our team and will help Honeywell continue to be a leader in connected technologies, building on our great positions in growing industries.”

In addition, Honeywell’s Smart Energy business unit, previously part of HBT, will immediately be integrated into the Process Solutions unit within Honeywell Performance Materials and Technologies.

“Both Smart Energy and Process Solutions have deep expertise in metering, large project rollouts and software, and both can leverage the Honeywell Sentience Platform to utilize vast quantities of user data to generate new products and services that help customers operate more efficiently,” Adamczyk said. “Both businesses are project-based with opportunities for recurring revenue streams. We are excited about the combination of these two businesses, which will allow them to expand their respective capabilities and serve a broader set of customers.”