Conglomerates combine many businesses that don't necessary fit together well, and while there's sometimes value in bringing together companies from multiple industries under a single corporate roof, the market lately has looked with disfavor at conglomerates that they see as being less than optimally organized. Honeywell (NYSE: HON) has a history of traditional stock splits, but now, the company is looking at breaking itself up to see if it can unlock more value for shareholders.
Honeywell's history of stock splits has reflected its rising stock price over time. The coming move, however, will result in multiple new businesses that will trade separately, and investors hope that the result will be a set of stocks that are worth more than Honeywell currently fetches. Let's look more closely at Honeywell's history of conventional stock splits and then turn to what the coming transaction will do.
Honeywell's history of stock splits
Here are the dates and split ratios for the stock splits that Honeywell has done in the past:
Honeywell has done only a few regular splits during its history. With the most recent having happened more than 20 years ago, it's clear that the conglomerate has seen things change enough that it hasn't felt it necessary to consider any similar moves since then.
Part of the reason has to do with Honeywell's stock price. After the 1997 split, the share price climbed from the $40s to the $60s, but the downturn from 2000 to 2002 sent the conglomerate's stock down substantially, bottoming near $20 per share. Honeywell regained ground during the economic boom in the mid-2000s, only once again to give back its gains when the financial crisis hit in 2008.
Still, by early 2015, Honeywell's stock had reached triple digits, and that would typically have been enough to spur a split based on past practice. Many companies, however, have changed the way they've done splits, with less incentive to keep their share price below $100. That change in general sentiment about stock splits likely played a role in Honeywell's decision not to do one.
Another type of split
What Honeywell has done instead of traditional stock splits is to make corporate moves to separate out some of the conglomerate's component businesses. In late 2016, the company decided to spin off the common stock of its AdvanSix (NYSE: ASIX) unit, which specializes in various types of resins, fertilizers, and other chemicals, giving one share of AdvanSix for every 25 Honeywell shares that shareholders owned. That relatively small spinoff had only a minimal impact on Honeywell's share price.
More recently, Honeywell announced last October that it would break itself into three parts. Under the proposal, the legacy Honeywell unit will hang onto its aerospace business. One new business will hold the conglomerate's portfolio of home products along with the ADI global distribution division. The second will hold Honeywell's transportation systems business unit.
At this point, it's uncertain exactly how many shares of the newly created publicly traded companies Honeywell shareholders will end up with after the transaction is complete. However, aerospace sales made up between 35% and 40% of total sales during the past three years, suggesting that spinning off the remainder of the business could result in a substantial decline in the share price unless Honeywell takes action to adjust its capital structure. Shareholders would be made whole by receiving shares of the spun-off businesses as well, but any concerns about Honeywell's stock price being too high would likely disappear.
What to expect from Honeywell
Honeywell hopes to have its breakup transactions complete by the end of 2018. At that point, investors will be able to see where the stock price ends up. In all likelihood, Honeywell won't be doing any traditional stock splits anytime in the near future.
10 stocks we like better than Honeywell InternationalWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Honeywell International wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of March 5, 2018