When I last wrote about Honeywell (NYSE:HON), I titled the article “Better Together,” and argued that the activist investor Third Point’s pressure on the company to spin off its aerospace division was misguided. However, I suggested that, if all Honeywell’s divisions were performing strongly, then their aggregate valuation as independent companies would be higher than what they receive as members of a conglomerate, and that individual operations might well receive very favorable market reception. In other words, and despite my title, I saw scope for disposals or spin offs, just not the one that Third Point was suggesting.
After a considerable and apparently quite thorough portfolio review, Honeywell’s new CEO seems to have come to a similar conclusion. In a presentation released Oct. 10, he announced that two operations will be spun off in tax-free distributions to shareholders by the end of 2018. The home thermostat and electronic security businesses will be combined with ADI, Honeywell’s distributor of low voltage and security devices, and Honeywell’s automotive activities, most notably its supercharger business, will be separated from the aerospace division. The businesses have revenue of some $4.5 billion and $3 billion respectively and strong positions in their fields. They can be expected to be greeted favorably by the market, especially since both of them will be potential takeover targets.