Activist Investor Elliott Reveals Surprise $5 Billion Stake in Conglomerate Honeywell

With more and more former conglomerates — GE, United Technologies, Kellogg’s, DuPont and so on — splitting into parts, Honeywell has aimed to keep its disparate assembled family more or less together. 

But Elliott Investment Management says its breakup would mark the end of an error. The activist fund revealed Tuesday that it has taken a $5 billion stake in Honeywell and is advocating for splitting the company into an aerospace firm and an automation firm, claiming anything less will leave significant value on the table.

“Embrace Simplification”

It all comes down to the usual two words: shareholder value. Large conglomerates — predicated on scale and buzzwords like “integration” and “synergies” — can use the diversity of their business lines as a bulwark against risk exposure in individual markets. But they also turn into cumbersome bureaucracies with massive overhead: Management ends up operating at arm’s length from customers and strategic decisions are made at a tortoise’s pace.

That’s why many investors have come around to the idea that it’s better to break up. For example, shares of GE Vernova, which spun off from GE’s energy division in April, have more than doubled in value since then. CEO Vimal Kapur has moved to simplify the company’s portfolio into what he calls the “megatrends” of automation, the future of aviation, and energy transition. But Elliott believes that doesn’t go far enough:

• “The time has come to embrace simplification,” reads the letter. “We believe a separation could result in share price upside of 51-75% over the next two years — a remarkable improvement for any business, let alone a $150 billion industrial bellwether.” Honeywell’s shares were up 3.9% Tuesday, and its market cap at $152 billion.
• Overall this year, Honeywell shares have increased 12%, including Tuesday’s jump, trailing the S&P 500’s 26% rise. “Honeywell’s struggle with complexity is neither unique nor surprising; it is endemic to the conglomerate operating model,” said Elliott, pointing to GE, United Technologies, Alcoa, Danaher, Tyco, Ingersoll Rand and “countless others that have found success through simplification.”

Play Nice: The underwhelming performance of Honeywell’s shares suggests management, at the very least, will need to extend an olive branch. A spokesperson said Honeywell “appreciate[s] the perspectives of all our shareholders” and ”look[s] forward to engaging with the firm to obtain their input.”