Wall St. Pans Honeywell-Pittway Merger Deal

Honeywell International Inc. said Monday it agreed to buy fire- and burglar-alarm maker Pittway Corp. for $2 billion in cash in a move to expand its security-system business.

But the deal went over poorly on Wall Street, where Honeywell shares slumped 11%, losing $7.13 to $56.63 on the New York Stock Exchange.

Honeywell International, the conglomerate formed Dec. 1 when AlliedSignal Inc. completed the acquisition of Honeywell Inc., also said it will increase the number of job cuts stemming from the creation of the new company. It now plans to eliminate 8,000 jobs, up from 4,500, or about 7% of its work force.

Honeywell said it will pay $45.50 for each Pittway share, 57% more than Pittway’s closing price Friday. Pittway shares jumped 55%, or $15.88, to $44.88 on the news Monday.

The acquisition gives Honeywell a bigger piece of the $10-billion annual market for fire-protection and security systems for businesses and homes.

Honeywell is the biggest maker of automated controls and supplies the aerospace, automotive and pharmaceuticals industries as well as fibers and plastics industries. But Honeywell’s fire- and security-system business is small. Most of its controls are geared toward heating and air conditioning.

Pittway’s Ademco, Notifier and System Sensor products may complement Honeywell systems that combine fire, security and heating controls into one package.

Still “The Pittway acquisition, on the face of it, is not the strategy they’ve been talking about [at Honeywell] in that area,” said Deutsche Banc Alex. Brown analyst Harriet Baldwin. “For home and building control, they’ve talked about improving system sales and moving away from commoditized component sales. They just bought a component company. That raises the question if that was the wrong thing to do.”

Honeywell said the deal won’t affect 2000 earnings, but should add to 2001 earnings.

Chicago-based Pittway had $1.3 billion in 1998 sales and said it expects its 1999 sales to total $1.6 billion. Honeywell has $24 billion in annual sales.