Honeywell To Spin-Off Non-Core Assets By End Of 2018

Published on: October 13, 2017
Author: Amy Liu

On October 10, 2017, Honeywell International HON +0.33% Inc. announced a plan to spin-off its Homes product portfolio and ADI Global Distribution business as well as its Transportation Systems business into two publicly-traded companies. Post spin-off, Homes and Global Distribution company will be the leader in home heating, ventilation and air conditioning controls and security markets and a global distributor of security and fire protection products. On the other hand, Transportation Systems company will be providing turbocharger technologies with best-in-class engineering capabilities for a broad range of engine types across global automobile, truck and other vehicle markets, while Honeywell will retain majority of Aerospace business, Performance Materials & Technologies, Building technologies and Safety and Productivity Solutions.

The company has not yet filed Form-10 with SEC. Both the spin-offs are expected to be tax-free and to complete by the end of 2018. The transactions will not require a shareholders vote. HON is expected to provide more details on the spin companies in 1H18. Effective immediately, Mr. Gary Michel will serve as president, CEO and company officer of Honeywell’s Home and Building Technologies strategic business group and report to Mr. Adamczyk. Mr. Michel succeeds Mr. Terrence Hahn, who will prepare Homes and ADI businesses for the spin and report to Mr. Adamczyk. Additionally, the company’s Smart Energy business unit which was previously part of Home and Building Technologies, will now be integrated into the Process Solutions unit within Performance Materials and Technologies. Other details of the spin-off such as the spin-off ratio, record date, when-issued trading date, distribution dates and ticker are yet to be disclosed.

Earlier in April, Third Point LLC advocated spin-off of Aerospace business on the premise that Honeywell was undervalued against its peers. We note that HON made the recent spin-off announcement after a review of the proposal to spin-off the Aerospace unit.

AdvanSix Spin-Off

Earlier on October 1, 2016, Honeywell International Inc. completed the tax-free spin-off of AdvanSix Inc. (NYSE: HON, $44.28, Market Capitalization: $1.4 billion) and both stocks started regular way trading on October 3, 2016. The spin-off ratio was 1:25, implying that each Honeywell shareholder received one AdvanSix share for every 25 shares of Honeywell held as of record date September 16, 2016.

Deal Rationale

In April 2017, Honeywell had stated that it would review the option to spin-off its Aerospace unit after pressure from Mr. Daniel Loeb’s hedge fund, Third Point LLC. Against this backdrop and post the comprehensive portfolio review, in October 2017, Honeywell announced the spin-off of Transportation Systems and Homes and Global Distribution. Through this transaction the US conglomerate intends to retain its high-growth businesses with strong operational and technological synergies, focused on six key markets. Further, Honeywell’s management expects the transaction to strengthen sales growth, margin and credit profile for Honeywell, with improved cash conversion and strong credit rating. Honeywell plans to deploy transaction proceeds of ~$3 billion for share repurchase, debt repayment and to pursue attractive inorganic growth opportunities.

Source: Forbes