From DatacenterDynamics, November 13:
Activist investor takes $5bn stake in manufacturing giant
Activist investor Elliott Investment Management has taken a $5 billion stake in Honeywell and called for the company to split its business in two, describing the firm’s quantum computing efforts as a “distraction.”
Elliott published an open letter to the company’s board on Tuesday stating that Honeywell must simplify its corporate structure and create two separate organizations for its aerospace and automation activities.Honeywell is one of the biggest manufacturers of industrial products in the US, and its control, storage, and security systems are widely used by data center operators.
Honeywell: Two companies are better than one?
In its letter, Elliott says Honeywell “remains a world-class company with market-leading assets. However, over the last five years, uneven execution, inconsistent financial results, and an underperforming share price have diminished its strong record of value creation.”It says the “conglomerate structure that once suited Honeywell no longer does, and the time has come to embrace simplification,” and calls for two new companies - Honeywell Aerospace and Honeywell Automation - to be formed. This would create “two sector leaders better positioned to thrive operationally, serve customers and employees, and create long-term value for shareholders,” the letter says.
According to Elliott, Honeywell’s “underlying business units not only compete with one another for investment allocation, but also have to compete against broader corporate initiatives.”....
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The stock got to $242.73 on the news but couldn't hold it, closing that day at $236.53 and changing hands today at $233.60, down 31 cents. What can be gleaned from Elliot's move and the reaction to it is that there may be value here that is not reflected in the price but turning that into investor profit may take a while.
If the broader market pulls back and pulls HON down with it (say $225-ish) there may be a trade here. Otherwise it is more akin to the cousin of activist investing, risk arbitrage, where the emphasis should always be on the first word.
