Honeywell, the company that seems to do it all, right down to the thermostats, and even aerospace technology has now issued a statement. They have just started the process of spinning off the advanced materials division as a new, differently managed public affair. All right, what we have seen so far and what it all implies, or why it should be of interest to us.
What’s Happening?
Honeywell of Charlotte North Carolina is already grinning and planning to boot – in the nicest way possible mind you – its advanced materials business. Instead, they are divesting this section as a standalone business by the end of 2025 or early 2026.
The best part? Honeywell intends to do this spinoff in a tax-free manner; those words sound like music to the ears of their shareholders. This move is all about simplifying Honeywell’s focus on their main strengths: aviation, automation and energy switching. To an extreme, of course, they are simply begging the question by stating, “Let’s do what we are good at.”
Why the Spin-Off?
Honeywell’s CEO Vimal Kapur is optimistic about this is the opportune time for their advanced material segment to go it alone. Why? Because the requirement for specialty chemicals and materials all over the world has never been higher. This division will have the flexibility of the organization where it could aim at the kind of growth that it wants, go after opportunities that it wants and develop on strengths already inherent in it. Additionally, because of its premier technologies and customer connections, Honeywell feels this business can stand on its own.
If you have only ever felt the weight in your backpack and felt that getting it off your back and running would be the best thing to do, then you would understand what Honeywell is doing. The companies are trying to separate this division which means they are trying to make their business models more efficient so they can be quicker in responding to further ventures.
Now Let’s Understand What This Means for Honeywell
Honeywell was able to create space to manage their key competency areas through spin off of the advanced material business. The spinoff will also assist them in fastening their development and improving the structures of their operations. In simple terms, it is like starting all over again on their business strategy map or plan.
But it is not so much a purely economic affair. This new company, according to Honeywell, should earn between $3.7 billion and $3.9 billion in sales in 2024, with a profit margin (EBITDA) of more than 25%. That’s a pretty sweet deal!
The new company forms an excellent portfolio of products, some of which are familiar in the market such as Solstice, Spectra, Hydranal, and Aclar. You may not recognise these but these are giants in the global speciality chemicals and materials market.
The Stock Market’s Reaction
It appears that the stock market is always hungry for more spin offs and Honeywell didn’t leave the investors hanging. Honeywell stock fluctuated in price on Tuesday, rising by 1.8%, but before Tuesday trading began, Honeywell stock had risen 2.8%. It also boosted the whole Dow Jones Industrial Average in the pre-market trading session.
Despite such fluctuations in Honeywell’s stock for this year, spinoff news are rather inspiring. After peaking in August last year, the stock pulled back and has been forming a base trying to determine its direction. It has risen and fallen slightly in the past few months, though the spinoff could be the thing that brings it back to life.
A Trend in the Market?
Honeywell isn’t the first company to go down this path, but it’s one of the latest and largest. Its simple; see for yourself with GE (General Electric). GE has recently performed its series of spin-offs, and, since that, GE HealthCare and GE Vernova stocks have risen like rockets. That is why GE HealthCare soared by almost 64%, and GE Vernova rose by an incredible 128%. Could Honeywell ‘s spinoff be the start of the same process yet again?
Final Thoughts
I was reading through key headlines today, when trying to comprehend why Honeywell has decided to spin off its advanced materials business, the move might sound like just business as usual, but it is big. This spin-off will create a clear path of Specialization for Honeywell as well as for this new company because both will be able focus on what they do best. And who knows? Perhaps this will have an effect now, and perhaps there will be even more changes to again in the future.
