Honeywell International Inc. stock hit a new high on Tuesday after activist investor Elliott Investment Management L.P. said it had a big stake in the company and wanted it to be broken up.
Elliott said that getting two of the biggest parts of the company apart could make the stock go up 51% to 75% in the next two years.
It’s time to accept simplification, Elliott partners Marc Steinberg and Jesse Cohn wrote in a letter to Honeywell’s board of directors. “The conglomerate structure that once worked for Honeywell no longer does,” they said.
The price of Honeywell’s stock HON 2.92% rose 4.7% in the morning, going above its all-time high of $234.18, which it hit on August 11, 2021.
It also rose the most among the parts of the Dow Jones Industrial Average (DJIA -0.53%). By itself, the Dow fell 123 points, or 0.3%, but the stock’s price rise added about 64 points to its value.
In an email to MarketWatch, Honeywell Chief Communicator Stacey Jones said, “Honeywell’s board of directors and management recognize and value the views of all our shareholders.” “Elliott hadn’t told us about their views before today, but we’re looking forward to talking to the firm to get their thoughts.”
Elliott said that the funds it runs have invested more than $5 billion in Honeywell all together. This is about 3.3% of Honeywell’s current market value of $153.27 billion.
In the message to Honeywell’s board, Elliott said that the company hasn’t been good at creating value for shareholders over the last five years because of “uneven execution, inconsistent financial results, and an underperforming share price.”
Even though the price of the stock hit a high point, it has only made 12.4% so far this year, while the Industrial Select Sector SPDR ETF XLI -0.89% has gone up 24.8% and the S&P 500 index SPX -0.27% has gone up 25.7%.
Elliott’s letter said, “In order to realize its full potential, Elliott suggested that Honeywell try to separate aerospace and automation.”
Elliott said that as separate entities, those companies would gain from less complicated strategies, better management, and better use of capital.
The investor used General Electric as an example of a company that went through a breakup that helped the prices of the separate parts go up. GE Aerospace stock GE -1.46% has gone up 78.5% so far this year, and GE Vernova Inc. GEV -5.84% shares, which are the company’s green energy business, have gone up 86% in the last three months.
Elliott said that Honeywell has operational problems that are common to conglomerates. For example, its smaller businesses don’t get enough management attention, and its larger businesses have to compete with other parts of the portfolio for investment dollars. Overall, the conglomerate has trouble managing such a big, spread-out company.
The investor said there is “abundant evidence” that making things easier makes businesses run better. In the letter, along with GE, other companies named United Technologies, Alcoa, Danaher, Tyco, Ingersoll Rand, Johnson Controls, ITT, Pentair, and DuPont are named as having increased shareholder returns through separations.
Elliott ended its letter by saying it wanted to “meet in person” to talk about its ideas.
