AlliedSignal Inc., the No. 1 seller of flight-safety systems, has agreed to buy Honeywell Inc. for $13.8 billion in stock to expand its aerospace business and diversify, a person familiar with the situation said Sunday.
AlliedSignal would swap 1.875 share for each share of Honeywell, the world's largest maker of automated controls. AlliedSignal also would assume $1.5 billion in debt. The exchange values Honeywell at $109.45 a share, a 14% premium to its closing price Thursday before speculation of a buyout. Honeywell shares rose nearly 10% Friday to close at $105 on the New York Stock Exchange.
The combined company would have complementary aerospace businesses, and Honeywell's other businesses would help offset slumps in the aerospace industry. The combination also would provide a successor to AlliedSignal Chief Executive Lawrence Bossidy, 64, who's been reluctant to name an heir.
Both companies declined to comment on the proposed deal.
"Now you basically have combined two essentially strong aerospace providers," said Todd Ernst, a Prudential Securities analyst. "You are going to have more leverage in the commercial aerospace market. It's a phenomenal deal for AlliedSignal shareholders."
The merged company, which would have $25 billion in revenue, would be called Honeywell and would be based in Morristown, N.J., where AlliedSignal has its headquarters. Honeywell's base in Minneapolis would be closed. About 4,500 jobs would be cut from the combined company, leaving it with about 120,000 employees.
Bossidy would be the new company's chairman until his retirement on April 1. Michael Bonsignore, 58, chairman and CEO of Honeywell, would be chief executive and become chairman upon Bossidy's retirement.
The combined company would be able to insulate itself more from the swings in the aerospace industry as airlines retrofit and upgrade their flight systems.
Honeywell makes climate-control systems, thermostats and air cleaners for commercial buildings and homes. It also makes aircraft-guidance systems, cockpit systems, flight-management and communication systems and industrial controls, which monitor and regulate machinery.
AlliedSignal makes aircraft equipment and safety systems, including collision-avoidance devices, navigation products and radios. The aerospace division had sales of $4.87 billion last year, or about 32% of the total revenue of $15.1 billion.
AlliedSignal also makes diesel-engine turbochargers, specialty chemicals, electronic materials, industrial and nylon fibers. It also has an automotive consumer-products line, which include Prestone antifreeze, Fram filters and Autolite spark plugs.