Speedy Merger Planned for Honeywell
AlliedSignal Inc., the largest maker of flight safety systems, and Honeywell Inc., the largest maker of automated controls, have set an aggressive six-month timetable to merge their operations into a $24-billion industrial giant that makes everything from aircraft landing systems to home thermostats.
Honeywell, as the combined company would be called, also is gearing up for more acquisitions in areas as diverse as security access systems and pharmaceutical chemicals.
All of Honeywell’s business areas “represent an opportunity for growth through acquisition,” said Michael Bonsignore, chairman and chief executive of Honeywell, who would lead the combined company.
The new company would cut about 4,500 jobs, or 3.6% of the two companies’ combined work forces, and close Honeywell’s offices in Minneapolis to consolidate its headquarters with AlliedSignal’s in Morristown, N.J. The moves would save the company $500 million a year starting in 2002.
Investors were quick to see the potential of the merger. On the New York Stock Exchange. Honeywell’s shares rose $7 to close at $112. AlliedSignal’s stock, one of the components of the Dow industrials, jumped $4.44 to close at $62.81, helping the Dow soar.
Because AlliedSignal would pay for Honeywell by issuing 236.3 million shares of stock, the 7.6% rise in AlliedSignal’s shares increased the value of the deal by about $1 billion from when it was announced Monday morning, to total $14.8 billion.
“It makes them an aerospace powerhouse,” said Prudential Securities analyst Todd Ernst, who has a “strong buy” rating on AlliedSignal. The new company “is going to have more leverage in the commercial aerospace market.”
AlliedSignal and Honeywell have already formed an integration team, which will spend the next three months creating a plan and put it into action within three months after the deal closes.
Regulators are expected to review the merger with a fine-toothed comb, but according to Bonsignore, AlliedSignal and Honeywell overlap in only two areas: collision-avoidance systems and weather radar, which account for about $250 million in annual sales, or a little more than 1% of the combined business.
If the companies can combine their operations fast and effectively, the new Honeywell would be in a strong position to serve its largest clients, which include Boeing Co., Airbus Industrie and the U.S. military. One of the motives behind AlliedSignal’s acquisition of Honeywell is that aircraft makers are reducing the number of parts suppliers they work with and demanding that those suppliers provide complete solutions.
While the aerospace business would account for 40% of the combined company’s business, the merger also would give the new Honeywell a stronger position in several other industries--including specialty chemicals and auto parts--which would insulate the company from a downturn.
