MW Honeywell's stock leaps toward a record after activist investor pushes for a breakup

By Tomi Kilgore

Elliott Investment Management said shareholders would benefit from the separation of Honeywell's aerospace and automation businesses

Shares of Honeywell International Inc. rallied into record territory Tuesday after activist investor Elliott Investment Management L.P. disclosed a large stake and said it was pushing for a breakup of the company.

Elliott said it believes the separation of two of the company's largest businesses could push the stock up 51% to 75% over the next two years.

"The conglomerate structure that once suited Honeywell no longer does, and the time has come to embrace simplification," Elliott partners Marc Steinberg and Jesse Cohn wrote in a letter to Honeywell's board of directors.

Honeywell's stock $(HON)$ jumped 4.7% in morning trading, to trade above its record closing price of $234.18 reached on Aug. 11, 2021.

It was also the biggest gainer among the Dow Jones Industrial Average's DJIA components. The stock's price gain was adding about 64 points to the price of the Dow, while the Dow itself fell 123 points, or 0.3%.

"Honeywell's board of directors and management acknowledge and appreciate the perspectives of all our shareholders," Honeywell Chief Communicator Stacey Jones said in an emailed statement to MarketWatch. "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."

Elliott said it manages funds that combined have made an investment of more than $5 billion in Honeywell, which would represent roughly 3.3% of Honeywell's current market capitalization of $153.27 billion.

In the letter to Honeywell's board, Elliott said "uneven execution, inconsistent financial results and an underperforming share price" have diminished the company's record of value creation for shareholders over the last five years.

While the stock was trading at a record, it has gained just 12.4% year to date, while the Industrial Select Sector SPDR ETF XLI has run up 24.8% and the S&P 500 index SPX has rallied 25.7%.

"In order to realize its full potential, Elliott recommended that Honeywell pursue a separation of aerospace and automation," Elliott's letter said.

As independent entities, those businesses would benefit from simplified strategies, focused management and improved capital allocation, Elliott said.

The investor referred to General Electric, among others, as an example in which a breakup helped boost the stocks of the independent pieces. GE Aerospace's stock $(GE)$ has soared 78.5% year to date, and shares of GE Vernova Inc. $(GEV.AU)$, the former conglomerate's renewable-energy business, have run up 86% over the past three months.

"Honeywell today suffers from operational issues that are common to conglomerates: specifically, its smaller businesses suffer from a lack of management attention, its larger businesses suffer from competition for investment dollars with other parts of the portfolio, and the whole conglomerate suffers from the difficulty of managing such a large and sprawling organization," Elliott said.

The investor said there is "abundant evidence" that simplification results in better business performance. In addition to GE, the letter lists a number of companies, including United Technologies, Alcoa, Danaher, Tyco, Ingersoll Rand, Johnson Controls, ITT, Pentair and DuPont, that improved shareholder returns through separations.

Elliott concluded its letter by saying it was asking to "meet in person" to discuss its proposals.

-Tomi Kilgore

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November 12, 2024 10:57 ET (15:57 GMT)

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