Industrial Giant Honeywell Will Break Up Into Three Separate Companies — Is That An Opportunity?
Over the last year, activist Elliott Management has been effective in rallying the troops shareholders around a great sales pitch — they’ve urged Southwest, Starbucks, and British Petroleum to embark on dramatic overhauls for the sake of efficiency (and stock gains, of course). And to start 2025, their effective activism is scoring another mark in the win column.
What’s your order? In November, Elliott took a $5B stake in industrial pioneer Honeywell, the largest stake they’ve ever held in a single stock. Their pitch was simple: Honeywell should break itself up into three unique firms — one for its aerospace business, another for its automation solutions, and the final one for its materials business. It was believed that the post-separation spinoffs would be able to realize their individual potential. That proposal is now moving forward.
- Last Thursday, Honeywell announced that it would separate itself into three independent businesses by the second half of 2026 — while selling off other unrelated businesses.
- Similar efforts have been undertaken by GE, DuPont, and 3M ($MMM), all with varied results — some of these transactions have resulted in significant gains, while others went nowhere.
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That’s one factor stirring skepticism about the strategy and sending down 7% since the announcement. However, the breakup could be an arbitrage opportunity for patient investors. Today, a conglomerated Honeywell trades at 24x price-to-earnings, making it richer than other industrial firms. But broken up, the businesses could command more premium valuations.
- According to data from NYU Stern, the average P/E among tracked Aerospace/Defense businesses and specialty chemical companies is 39x and 26x, respectively — both higher than the conglomerate Honeywell currently fetches.
- Although not tracked separately, automation and robotics firms have been catching eyes from investors — and Honeywell is a profitable legacy name.
Is it worth buying? Honeywell’s soon-to-be three unique business segments — Automation, Aerospace, and Materials — generated $18B, $15B, and $4B in revenue last year, respectively. That makes them one of the largest industrial firms in the country and possibly a wildcard investment. Given the similarities to GE’s transaction, which saw the firm split its aerospace, energy, and healthcare businesses, investors might be invested (literally) in picking up shares — effectively getting three lottery tickets in the process. Whether the separate enterprises will host richer valuations and benefit from better stewardship on their own are factors that will decide whether this is a valuable trade — or a waste of time.
