Honeywell shareholders resisting aerospace spinoff: CEO

June 13, 2017
Written by Bloomberg
Honeywell International Inc. shareholders are resisting calls by activist investor Third Point that the company spin off its aerospace unit, fearing they would lose out on the fruits of recent investments, executive chairman David Cote said.

The industrial giant’s development of aircraft broadband internet service for travellers and providing real-time data on component performance is hitting the market this year. The aerospace unit, which also makes cockpit controls and jet engines for private planes, has been a drag on earnings amid a weak market for helicopters and business jets, and as budget cuts hurt defense sales.

Aerospace “is a very long cycle business,” Cote said Monday in an interview with Bloomberg Television Canada at the Conference of Montreal. “You invest today to help you over the next 20 or 30 years. Even the development cycle is in the five- to six-year range.”

Third Point, the investment firm founded by Dan Loeb, said in an April letter to investors that carving out aerospace would increase shareholder value by more than $20 billion and allow the Morris Plains, New Jersey-based company to focus on its automation and productivity businesses. Sales at Honeywell Aerospace fell 3.2 percent last year to $14.8 billion, while the segment’s profit dropped 7.1 per cent to $2.99 billion.

Cote said some investors have told him they wouldn’t be able to keep their shares if the unit is spun off.

“That is a big part of what we’re getting on investor reaction. ‘Gee, I helped you invest all this money. Now you’re going to split this off. Based on my ownership charter, I’m not going to be able to own that company anymore,”’ he said. Cote didn’t name the investors.

Honeywell CEO Darius Adamczyk, who took over March 31, is continuing to review the portfolio – a process that will result in announcements in the fall, Cote said.

“Darius and the board have been on an extensive process that actually predated Third Point,” the former CEO said. “I don’t think people should expect that it’s going to be this business, this business, this business -- but rather more like general principles.”

Honeywell is pressing ahead with investments in countries including China even as its economic expansion slows, Cote said. 

China has grown “at 6 to 7 per cent a year for a long time. It looks maybe not that great in the future, but even at 5 per cent it’s a pretty good place to be,” he said.

He predicted that the U.S. economy will continue to expand near-term.

“It’s still continuing along at that 2 per cent range, so I’m not that worried about a recession or something bad happening,” he said. “I actually think we’re OK for the next couple of years.”

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