Honeywell OKs Sale of 80% of Its Computer Business

Honeywell Inc. said Tuesday that it has signed a tentative agreement to spin off most of its computer business into a joint venture with France’s Compagnie des Machines Bull and Japan’s NEC Corp. Honeywell will receive $500 million.

The new company, as yet unnamed, would be the first computer maker jointly owned by Americans, Europeans and Japanese. In 1985, it would have had annual sales of about $1.85 billion.

Honeywell said it would hold a 42.5% interest in the new company until the end of 1988, when it would have the option to reduce its holdings to 19.9%. Bull would initially own 42.5% of the new company and NEC 15%, the three companies announced in a joint press release.

Major Restructuring

“(Honeywell) has effectively sold over 80% of its computer business,” said Gary Blauer, an analyst with Dain Bosworth Inc. in Minneapolis. “That’s about the best they could do.”

The move is part of a major restructuring at Honeywell. The company has experienced declines in earnings from its computer business, and it is reshaping to focus on its automation and controls business and its aerospace and defense group.

The agreement signed Tuesday was described as a “memorandum of understanding.” A definitive agreement is expected by the end of March, when Bull is expected to emerge as the controlling partner of the new company.

“Bull is the one making the bold move,” Blauer said. “They’re the one moving into the business.”

Under the arrangement, Honeywell will retain its federal systems division as a subsidiary. The division, which sells computers to the U.S. government, had 1985 revenue of $250 million.

Will Be Big Customer

NEC ranked as the world’s seventh-largest computer company in terms of data-processing revenue in 1985, followed by Honeywell in 15th place and Bull in 16th, according to Datamation magazine.

Honeywell expects to be the largest customer of the new company as a supplier of computer systems and as a user of data processing operations, the company said. The company will also sell products of Bull and NEC.

The $500 million that Honeywell expects to receive consists of $350 million in cash from the new company for the return of capital and the repayment of debt and $150 million from the sale of 57.5% of the computer business to Bull and NEC.

The company said it would take a $250-million charge against earnings in the fourth quarter by writing down the book value of its existing computer business. That move will result in a substantial loss for the quarter and year, the company said.

Last year the computer group reported revenue of $1.95 billion and operating profit of $200 million. But this year, the division has dragged down the company’s earnings.

For the first nine months of the year, Honeywell posted a profit of $94.7 million, a 39% decline from the same period a year ago even though revenue increased 6.5%.

The company’s overall restructuring has included a worldwide reduction of about 4,000 employees and the purchase last month of the Sperry aerospace unit from Unisys Corp. for $1.03 billion.

According to the agreement, the new company would be managed by the existing managers of Honeywell’s computer division. But Blauer said it won’t be long before Bull influences the way the company is managed because of its lead position in the joint venture.