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Honeywell taps Bossidy
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July 3, 2001: 8:18 p.m. ET
Diversified manufacturer names Bossidy CEO/Chairman, warns on 2Q
By Staff Writers Luisa Beltran & Kim Khan
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NEW YORK (CNNfn) - Honeywell International Inc., which failed earlier in the day to gain European approval for its $43 billion merger with General Electric Co., late Tuesday ousted Chairman and CEO Michael Bonsignore and charged his successor with keeping the company independent for at least a year.
Honeywell's board named Lawrence Bossidy, AlliedSignal Corp.'s former chairman and CEO, to replace Bonsignore. AlliedSignal acquired Honeywell in 1999 and adopted the Honeywell name.
Bonsignore officially retired from Honeywell after 31 years.
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Michael Bonsignore
Retiring Honeywell CEO. | |
Bossidy said he will implement a strategy to enhance shareholder value as an independent company.
"It is time to leave behind the distractions of the past several months and to immediately implement a laser-sharp focus on consistently meeting our financial commitments and our customers' needs," Bossidy said in a statement.
"I'm going to try to encourage people to forget the past," Bossidy said in a conference call Tuesday evening.
Bossidy, who was given a one year contract, said his job is to "restabilize the company and approve the morale and energy and focus of the company." After that time Honeywell may consider offers from other interested bidders.
He also said one of his top priorities is retain employees who were leaving on the premise of losing their jobs once the merger was completed.
Honeywell also lowered its second-quarter earnings and revenue forecasts. The company now expects second-quarter revenue to be $6 billion, with earnings in the range of 53 to 55 cents per share. Analysts surveyed by First Call had on average expected earnings of 60 cents per share.
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 Michael Bonsignore's tenure as CEO of Honeywell ended Tuesday following the EU's rejection of its merger with GE. CNNfn's Peter Viles takes a closer look. |
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Second-quarter earnings exclude a one-time charge in the range of $575 million to $625 million, related to repositioning, customer settlements and merger-related expenses.
For the year, the company expects sales between $24 billion and $24.5 billion, with earnings in the range of $2.15 to $2.30 per share. Analysts had forecast earnings of $2.46 per share.
The move to replace Bonsignore was expected after the European Union officially rejected Tuesday General Electric Co.'s planned takeover of Honeywell.
Morristown, N.J.-based Honeywell (HON: up $0.99 to $35.10, Research, Estimates) , is a diversified industrial manufacturer, making products such as turboprop engines, systems for flight safety and aircraft landing, and heating and ventilation controls, as well as specialty chemicals.
A Dow Jones industrial average component, Honeywell generated $25 billion in sales last year and employs 125,000 people. Its shares surged nearly 3 percent Tuesday on rumors of Bonsignore's departure while shares of GE (GE: down $0.69 to $49.51, Research, Estimates) were marginally lower.
A familiar face
Bossidy, 66, is a known force to Honeywell shareholders. As head of AlliedSignal, Bossidy drove Allied's $14 billion takeover of Honeywell in 1999.
Bossidy also has close ties to General Electric and was Jack Welch's No. 2 at the U.S. conglomerate, running GE's finance arm, GE Capital, until he left in 1991 to join AlliedSignal.
Bossidy, focused and intense, saw AlliedSignal's shares quintuple in value and the firm outperformed the S&P 500 under his reign. He drove AlliedSignal's takeover of Honeywell and served as chairman of the combined Honeywell-AlliedSignal for four months until he turned over the reigns to Bonsignore in April 2000.
After the failed GE takeover, Bossidy's leadership will give Honeywell shareholders confidence in the company's management, analysts said.
"Bossidy is going to do a lot and he will work to unlock a lot of value," said analyst Nicholas Heymann, of Prudential Securities.
"Investors feel that Bossidy is someone they can trust," added analyst Harriet Baldwin, of Deutsche Banc Alex. Brown Inc.
The close ties to GE's Welch mean that many do not expect Honeywell to sue GE over its failed merger, analysts said.
What's next?
Now that Bossidy is back on board, Honeywell will likely stay solo for a bit as it tries to reassess its position, Baldwin said.
GE will probably appeal its failed merger with Honeywell which will prohibit Honeywell from entering into other contracts for the next two to three years, said one analyst who declined to speak on the record
This forces Honeywell into a tough position. The company has seen its profit fall and in April reported a lower than expected drop in first quarter income.
The rocky performance means Honeywell will probably look to break up. "Bossidy will sell off the corporation in smaller parts and maximize value with buyers," the analyst said.
But during the conference call Bossidy stressed the need to get the company back on its feet, focusing on the core aerospace and materials business and building on those assets.
Even if it doesn't break up, Honeywell made it known last year that it wanted to divest four ancillary business units. In November, Honeywell canceled the plans because of GE's planned takeover. The company had expected to sell its Friction Materials, Automotive Consumer Products Group, U.S. Security Monitoring and Pharmaceutical Fine Chemicals businesses in light of the merger.
Honeywell had hoped to raise nearly $4 billion from the sales, analysts said.
The four units announced to be sold add up to a little more than $2 billion in sales so Honeywell may be selling some other units that it hasn't announced, said Deutsche Banc's Baldwin.
Likely suitors
In October, GE snatched Honeywell away from rival suitor United Technologies Corp. in a surprise $45 billion deal. Many now expect the spurned suitor to at least give Honeywell another look.
Hartford, Conn.-based United Technologies (UTX: up $1.87 to $72.95, Research, Estimates) , which makes everything from Otis elevators to Pratt & Whitney aircraft engines, is the only company that could take on the entire firm of Honeywell, said Prudential's Heymann.
"UTX was interested and they would be qualified because they supplied engines for so long," he said.
If UTX does return with an offer it will be lower than the $55 a share GE offered for Honeywell back in October.
"We wouldn't be surprised if [United Tech] came back with a bid in the mid-$40s--if they do come back," Baldwin said.
Speculation has also centered around Tyco International Inc. which was rumored last October to also be in interested in acquiring Honeywell. However the diversified manufacturer has made it known that it is not interested in Honeywell.
Tyco, which has operational headquarters in Exeter, N.H., makes electronics, fire and security systems, disposable medical supplies, and flow-control products such as valves.
Honeywell doesn't meet Tyco's business growth and margin standards, Baldwin said. More importantly, Honeywell's businesses are outside Tyco's (TYC: up $0.38 to $54.98, Research, Estimates) focus.
"Tyco doesn't want to be in the aerospace, chemical or auto business," Baldwin said.
"Tyco has no experience in the avionics industry," noted Heymann of Prudential, who discounted Tyco as a potential suitor.
Munich, Germany-based Siemens AG (SI: up $0.12 to $62.32, Research, Estimates) was also rumored to be interested last year and may still be so, analysts said. But the technology firm has no reputation "to serve integrated airframe manufacturers," Heymann said.
Speculation has also centered around Minnesota Mining & Manufacturing Co., or 3M, which may be interested. 3M (3M: Research, Estimates) makes such diverse products as Scotch tape and Post-It Notes, industrial coatings, and health-care products and equipment. In December 3M tapped W. James McNerney to succeed L.D. DeSimone as its CEO.
McNerney is also another former GE employee whose history at General Electric dates back to 1982. Until last year, McNerney served as CEO of GE Aircraft Engines in Cincinnati and before that was CEO of GE Lighting.
But 3M has no experience with aerospace controls, analysts said.
Only UTX and GE have the ability and the experience to buy the whole of Honeywell outright and serve the airline industry and airframe manufacturers, Heymann said.
"For one stop shopping, its only UTX," he said. 
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