Honeywell has announced its plan to split its operations into two separate businesses: aerospace and home automation. The decision comes after activist investment firm Elliott Investment Management took a stake in the company, prompting a re-evaluation of its strategy.
The move follows a trend seen among industry leaders such as General Electric, Alcoa, and United Technologies, which have also broken up their conglomerate structures to improve transparency and focus on singular industries. This is done to unlock valuation and enhance shareholder value by allowing investors to buy pure-play stocks without the “conglomerate discount.”
However, not all conglomerates will benefit from this split. The 1960s “nifty fifty” companies that traded above 50 times earnings as conglomerates are an example of how this strategy may not always work. Many of these companies broke up in the past to focus on their core industries.
Honeywell itself has a long history dating back to 1885, when it was founded by inventing a damper for coal furnaces. The company developed autopilot systems and fuel indicators during World War II, becoming a premier supplier of cockpit avionics systems. In 1999, AlliedSignal acquired Honeywell for $14.9 billion.
In 2020, the surviving UTC unit combined with Raytheon in a merger, creating a broader conglomerate focused on commercial aerospace and defense. The decision to break up or stay together ultimately depends on whether management can add value by focusing on two disparate businesses.
United Technologies’ spinoff of its aerospace business led to significant growth, with shares climbing 63% in 2024. However, the success of this strategy is not a guarantee, and other companies may follow different paths. The aerospace industry is currently experiencing an era of disaggregation, but the Boeing debate highlights the complexity of making strategic decisions for conglomerates.
Source: https://www.forbes.com/sites/jerroldlundquist/2025/02/09/honeywell-continues-the-disaggregation-trend-amongst-aerospace-companies