Honeywell CEO Puts Away `Elephant Gun' After Takeover Bid Ends

  • Cote says United Technologies offer was `unique opportunity'
  • Share sale 3 days before proposal was `coinkydink,' he says

Honeywell International Inc. Chief Executive Officer Dave Cote said he’s not carrying an “elephant gun” to hunt huge acquisitions after scrapping a $90 billion offer for United Technologies that was rebuffed. 

The effort to buy United Technologies was a “unique opportunity at a unique point in time with under-managed assets at a good price,” Cote said during an investor day presentation on Wednesday. United Technologies turned down the offer, saying it was “grossly undervalued,” wouldn’t clear regulatory hurdles, and faced opposition from aerospace customers including Airbus Group SE.

“Does this mean that you now have your .450 elephant gun out and you’re just running around the world looking for stuff?” Cote said at the beginning of the four-and-a-half-hour investor event. “The answer is no.” 

The bid, which would have used Honeywell stock and borrowings of $36 billion, caught investors off guard because Cote’s largest acquisition has been last year’s $5.1 billion purchase of Elster. He said three years ago he preferred less-risky deals under $1 billion. 

Cote also addressed questions about his sale of $36 million of Honeywell shares on Feb. 16, three days before the acquisition offer. He said it was a coincidence and that he sold Honeywell shares last year at about the same date.

Three Stooges

“So, it’s really nothing more than that,” Cote said. “It’s what I guess the Three Stooges would call a ‘coinkydink.’”

Cote said he still holds more than 60 times his annual salary in stock after selling less than 10 percent of his holdings.

In an effort to get investors focused on Honeywell’s operations and away from megadeals, the company said Wednesday that sales from existing businesses will increase in 2017 at more than twice this year’s pace as aerospace work increases and chemicals production expands.

Growth of “core organic” sales will accelerate to as much as 5 percent from about 1 percent to 2 percent this year. That will drive total revenue in 2017 to about $43 billion from a midpoint estimate of $40.4 billion this year, according to the presentation.

Stumbling Block

Low sales growth has been a stumbling block for Cote’s efforts to convince investors that Honeywell should be valued as highly as industrial companies including 3M Co. and Danaher Corp. Honeywell trades at 16.1 times its estimated earnings over 12 months. That compares with 19.4 times for 3M and Danaher’s 18.6 times.

To juice sales amid a sluggish global expansion, Honeywell stepped up capital expenditures to an annual pace of $1.1 billion the last two years to boost production of refrigerants, refinery catalysts and other products. It expects to maintain a similar level this year before investments taper off to $1 billion next year and drop as low as $800 million in 2018, the company said in the presentation. That would be the least since 2011.

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