Activist investor Elliott Investment Management has taken a $5 billion stake in Honeywell and called for the company to split its business in two, describing the firm’s quantum computing efforts as a “distraction.”
Elliott published an open letter to the company’s board on Tuesday stating that Honeywell must simplify its corporate structure and create two separate organizations for its aerospace and automation activities.
Honeywell is one of the biggest manufacturers of industrial products in the US, and its control, storage, and security systems are widely used by data center operators.
Honeywell: Two companies are better than one?
In its letter, Elliott says Honeywell “remains a world-class company with market-leading assets. However, over the last five years, uneven execution, inconsistent financial results, and an underperforming share price have diminished its strong record of value creation.”
It says the “conglomerate structure that once suited Honeywell no longer does, and the time has come to embrace simplification,” and calls for two new companies - Honeywell Aerospace and Honeywell Automation - to be formed. This would create “two sector leaders better positioned to thrive operationally, serve customers and employees, and create long-term value for shareholders,” the letter says.
According to Elliott, Honeywell’s “underlying business units not only compete with one another for investment allocation, but also have to compete against broader corporate initiatives.”
Quantinuum in Elliott's crosshairs
It takes aim at Quantinuum, the quantum computing company formed by Honeywell in 2021 when it merged its own quantum solutions division with startup Cambridge Quantum Computing.
“While we make no judgment on Quantinuum itself, it is reasonable to question whether Honeywell's investing in quantum computing is a distraction - in either investment dollars or management mindshare - from its core businesses,” the Elliott letter said.
Honeywell owns a 54 percent stake in the Quantinuum and IBM is also an investor. In July, it was reported that the company could go public, with Honeywell said to be pursuing an IPO that would value Quantinuum at $10 billion.
The last quarter saw Honeywell report year-on-year revenue growth of six percent, with the company bringing in $9.7bn.
Responding to the Elliott letter, Stacey Jones, chief communicator at Honeywell, said: “Honeywell’s board of directors and management acknowledge and appreciate the perspectives of all our shareholders.
“Although Elliott had not made us aware of their views prior to today, we look forward to engaging with the firm to obtain their input. Our leadership welcomes investor feedback as we continue to execute a disciplined strategy, which includes pursuing sustainable growth, optimizing the portfolio, and maintaining an accretive capital deployment program.”
