Activist investor Elliott Investment Management called for a break-up of Honeywell (HON.O) into its aerospace and automation businesses on Tuesday, after saying it had built a stake worth more than $5 billion in the industrial giant.
Honeywell, worth $153 billion, would benefit from a simplified structure and a separation could create two sector leaders that could perform better and benefit customers, employees and shareholders, Elliott told the company on Tuesday.
A separation could push up the share price by 51% to 75% in the next two years, Elliott said in a letter to Honeywell's board.
Honeywell's stock price jumped nearly 5% in early trading to exchange hands at $235.72 a share. Since January, the stock has climbed nearly 13%.
Elliott called Honeywell an "iconic pillar" in American industry with market-leading assets, but "uneven execution, inconsistent financial results and an underperforming share price" have hurt it over the last five years.
For Elliott, the investment in Honeywell is the biggest it has ever made and the firm said it wants to work with the company and requested a meeting.
Honeywell said it looks forward to engaging with the firm even though it had no prior knowledge of the investment.
The Charlotte, North Carolina-headquartered company has been on a dealmaking spree since CEO Vimal Kapur took the helm last year, in a push to shift focus on so-called megatrends of automation, the future of aviation and energy transition. It has also been shedding assets that do not align with these trends.
Last month, the company announced plans to spin off its advanced materials unit into a publicly traded company. Separately, it also said it was looking to divest its personal protective equipment business.
Elliott told the company that after separating Aerospace, Honeywell Automation would be a stronger and better-run business valued at roughly $100 billion.
History has shown that other companies including United Technologies, GE and Ingersoll Rand benefited from separations and that the upside for those companies significantly topped all initial expectations.
While conglomerates once pleased investors, times have changed and Elliott said it surveyed shareholders and that 81% feel pure play industrial companies perform better than diversified conglomerates.
Elliott invests roughly $70 billion in assets and is one of the busiest and most powerful activist investors having recently pushed for changes at Southwest Airlines and coffee chain Starbucks.
