Honeywell International said it intends to spin off its advanced materials unit, creating an independent publicly traded company from what the Charlotte-based technology company categorized as a “non-core” business.
The tax-free spinoff to shareholders will create a specialty chemicals and materials company with expected 2024 revenue of about $3.8 billion and an EBITDA margin greater than 25%, Honeywell said a statement Tuesday. It expects to complete the transaction by the end of 2025 or 2026 so it won’t affect this year’s guidance.
The spinoff follows four acquisitions in the past year aimed at bolstering returns around three areas CEO Vimal Kapur described as “megatrends.” Those are: automation, the future of aviation and energy transition. The advanced materials unit sells semiconductor materials, fibers for protective armor and medical applications and refrigeration and heating technologies to help companies reduce carbon dioxide emissions.
The “combination of strategic bolt-on acquisitions and subtractions of high quality but non-core business lines…will continue to enhance our portfolio mix,” Kapur said in the statement.
The CEO told an analysts’ conference last month he’s been disappointed by Honeywell’s stock performance and the speed of change at the company over the past year. Since taking charge as CEO in June 2023, he’s realigned Honeywell’s business segments with a focus on the three megatrends. The updated reporting structure covers four segments: aerospace technologies, industrial automation, building automation and energy and sustainability solutions – of which advanced materials generates about 60% of sales.
Shareholders of Honeywell and the new company will benefit from “a simplified strategic focus” and greater flexibility to invest in organic growth opportunities, the statement said. It added the spinoff will create “distinct investment profiles that position each company to unlock greater long-term value for shareowners.”
Noting “sustained” global demand for advanced specialty chemicals and materials, Honeywell said the spinoff will give the new opportunity to tap its technologies and customer relationships.
Disposing of the advanced materials business will help Honeywell improve organic sales growth and reduce the cyclicality of sales, while improving the company’s ability to generate free cash flow, the statement said.
Honeywell shares closed Tuesday at $207, up $3.67 or 1.8%. Honeywell stock has gained 12.1% in the past year.
