Honeywell Plans Resin Spinoff After Record M&A Bid Stymied

  • Shareholders will receive stock in new business tax-free
  • Analyst calls move a ‘prudent’ shift in company’s portfolio

Honeywell International Inc., stymied in what would have been a record $90 billion takeover, now plans to spin off its resins business as Chief Executive Officer Dave Cote works to boost profit.

Shareholders will get stock in the $1.3 billion operation when the tax-free transaction is completed early next year, Honeywell said Thursday. The spun-off unit, which makes polymer resins used to engineer plastics, fibers and filaments, will be called AdvanSix Inc.

“It really wasn’t a core piece of their growth businesses,” Jeff Windau, an analyst with Edward Jones & Co. “The growth is lower and it tends to be a very competitive industry.”

The move underscores Cote’s determination to expand margins after he failed earlier this year to pull off the blockbuster acquisition of United Technologies Corp., which would have been the biggest industrial merger ever. Honeywell’s fastest-growing divisions include aerospace equipment, building controls and refrigerants -- units that would have meshed well with United Technologies, and which are growing faster than resins.

Portfolio Pruning

Cote has often tweaked Honeywell’s portfolio of businesses, selling about 60 units with $7 billion of sales since 2002 and acquiring another 90 companies with $14 billion in revenue over the same period. The resins unit accounted for about 3 percent of Honeywell’s $38.6 billion sales last year.

The spinoff is “a prudent portfolio pruning,” said Robert McCarthy, an analyst with Stifel Nicolaus & Co., in a note to clients. “This is not surprising in the continued evolution of Honeywell.”

Cote gave up on trying to acquire United Technologies in March after the target company said his offer was “grossly undervalued,” wouldn’t clear regulatory hurdles and faced opposition from large aerospace customers including Airbus Group SE.

Outpacing Market

In a presentation Wednesday, Honeywell said the resins unit was expected to post 4 percent annual growth over the next five years, outpacing a 3 percent pace in the $8 billion market. Still, that’s much lower than growth of 11 percent for Honeywell’s refrigerants-and-foams products and a 9 percent expansion of refining products and services over the same period.

The resins business “is favorably positioned to continue to achieve global growth as a standalone enterprise,” Cote said in the statement. “Following the spinoff, Honeywell and AdvanSix will each have a more focused business.”

In April, Bloomberg reported that Morris Plains, New Jersey-based Honeywell was considering exiting the business. The business generated about $107.8 million in cash provided by operating activities in 2015, the company said in a filing Thursday. Honeywell has said it’s the lowest-cost producer of caprolactam and in an April conference call said resins and chemicals faced “challenging market conditions.”

The unit’s sales dropped 26 percent in 2015 to $1.3 billion and net income sank 21 percent to $68.1 million, according to a Honeywell filing on Thursday. Since 2011 resin prices have declined because large increases in supply have outstripped demand, the company said.

The move announced Thursday mirrors an earlier one by Royal DSM NV of the Netherlands amid heightened competition from Chinese manufacturers that have increased exports to the U.S. AdvanSix will use part of its caprolactam output to make Nylon 6, a polymer resin used in products for carpets, automotive and electronic components, and industrial packaging. As a byproduct, the unit makes ammonium sulfate that’s used as a fertilizer.

Erin Kane, who has lead the resins and chemicals unit for the last two years, was named president and chief executive officer of AdvanSix, Honeywell said.

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