Elliott Management targets Honeywell with $5 billion stake, pushes for major restructuring

Honeywell International Inc. (NASDAQ: HON) is facing pressure from Elliott Management after the activist investor revealed a more than $5 billion stake in the industrial giant.

Elliott is urging Honeywell to split its Aerospace and Automation divisions, a move it believes could unlock significant value, projecting up to 75% upside by 2026.

The proposal arrives as Honeywell stock hits a record high, raising the stakes for this potential restructuring.

In a letter to Honeywell on Tuesday, Elliott Management argued that the company’s traditional conglomerate structure no longer serves its best interests.

“The conglomerate structure that once suited Honeywell no longer does,” the activist investor stated.

The firm believes that separating Honeywell’s aerospace and automation businesses could streamline operations, eliminate inefficiencies, and ultimately drive shareholder value.

Honeywell has acknowledged the proposal and confirmed that it will engage with Elliott Management, appreciating the perspectives of all its shareholders.

However, the company has struggled in recent years with a complex corporate structure and subpar communication with investors, contributing to its underperformance relative to peers in the industrial sector.

Elliott has pointed to these issues, along with a challenged portfolio, as reasons for Honeywell’s lagging position in the market.

Honeywell’s performance and Elliott’s rationale for a split

Honeywell’s aerospace division, described by Elliott as the company’s “crown jewel,” has consistently been a strong performer.

However, the activist investor noted that the division has received only a small portion of Honeywell's mergers and acquisitions (M&A) budget—just 10% of the funds spent over the past two decades.

Despite this, aerospace continues to generate substantial cash flow for the company.

Elliott argues that splitting Honeywell into two distinct entities—each focused on aerospace and automation—would create two more focused, potentially more valuable companies.

Both divisions already have separate CEOs and back-office operations, making the proposed split more feasible.

At present, Honeywell stock remains an attractive option for income investors, offering a dividend yield of 1.93%.

Wall Street analysts have a consensus "overweight" rating on Honeywell shares, reflecting confidence in the company’s long-term potential despite recent challenges.

HON hasn’t been prudent with allocating M&A dollars

Elliott’s proposal aligns with a broader trend in the industrial sector, where conglomerates are facing increasing pressure to break up into smaller, more focused companies.

General Electric (GE) is a notable example: in 2024, GE split into three separate entities: GE Aerospace, GE Vernova, and GE Healthcare.

Elliott itself previously pushed for a split at Marathon Petroleum in 2019, underscoring the activist investor’s strategy of advocating for more streamlined and efficient business models.

“The path we’re suggesting is not novel, and we’re confident that many have already suggested it to Honeywell’s Board and management,” Elliott added in its letter.

The firm believes that, if executed, both Honeywell’s aerospace and automation businesses could each be worth more than $100 billion as standalone companies.

As Honeywell navigates this critical juncture, the pressure from Elliott Management is likely to fuel ongoing debates about the future of industrial conglomerates and the potential benefits of a more focused, streamlined approach.