AlliedSignal to purchase Honeywell

$14.8 billion merger to form bigger player in aerospace, defense

`An exciting natural fit'

Honeywell to leave Minn. headquarters

4,500 jobs to be cut

Electronics

June 08, 1999|By Greg Schneider | Greg Schneider,SUN STAFF

Creating a major new player in aerospace and defense electronics, AlliedSignal Inc. said yesterday that it has signed an agreement to purchase Honeywell Inc. for about $14.8 billion worth of stock based on yesterday's closing prices.

The merger will produce an industrial conglomerate with $25 billion in annual sales. The new company will adopt the more recognizable Honeywell name, but will occupy AlliedSignal's headquarters in Morristown, N.J.

Honeywell has been based in Minnesota for more than 100 years, while the AlliedSignal name dates to a 1985 merger.

The companies expect to cut about 4,500 jobs over the next year to arrive at a work force of about 120,000. Most of the cuts are likely to take place in Honeywell operations that overlap with business at AlliedSignal, including corporate infrastructure and research and development, company officials said.

There should be little impact on the 1,700 Maryland employees at AlliedSignal Technical Services Corp. in Columbia, said Joe Militano, spokesman for that facility.

ATSC's primary line of work is providing engineers to NASA to track and operate satellites. Analysts said that Honeywell has no major similar business, and that the jobs in Columbia should be secure.

Aerospace will be the largest business segment of the merged company, accounting for $10 billion in annual revenue. Honeywell will add its expertise in cockpit controls and avionics to AlliedSignal's specialties in flight safety products and services.

Beyond those areas, the two companies hope to blend broad portfolios of industrial expertise. With annual sales of $15 billion, AlliedSignal is spread across businesses such as automotive products, specialty chemicals, fibers and plastics.

Honeywell, which has annual revenue of $8.4 billion, provides control systems for industry, home and business, as well as making turbochargers and other transportation products.

"The merger is an exciting natural fit of two companies whose businesses and cultures are highly complementary," said Lawrence A. Bossidy, AlliedSignal's chairman and chief executive officer.

The merger will be subject to federal antitrust review, and experts said that while military electronics may get close scrutiny, there is a good likelihood that the marriage will win approval.

"This is the kind of deal that the Pentagon has encouraged," said Stuart McCutchan, publisher of the Defense Mergers & Acquisitions newsletter.

The overall size of the new corporation will rival that of aerospace giant Lockheed Martin Corp., but its $10 billion in aerospace work puts the company on a par with Northrop Grumman Corp. as a leader of the "second tier" of defense contractors, McCutchan said.

The second-tier companies supply components and expertise to the Big Three -- Lockheed Martin, Boeing Co. and Raytheon Co. The Pentagon has encouraged such suppliers to consolidate so they can be healthier partners for the giant prime contractors.

"Obviously, Northrop Grumman will be affected by this. AlliedSignal's capabilities bolstering Honeywell's electronics capabilities is going to make them a much stronger competitor to Northrop Grumman than they've been in the past," said Renee Gentry, who analyzes defense companies for the Teal Group consulting firm in Fairfax, Va.

Both companies' boards of directors have approved the transaction, which calls for AlliedSignal to exchange each share of Honeywell stock for 1.875 shares of AlliedSignal common stock. AlliedSignal also will assume $1.5 billion in Honeywell debt.

Bossidy, 64, the leader of AlliedSignal, will be chairman of the new company until his retirement April 1. He will be succeeded by Michael R. Bonsignore, 58, the chairman and chief executive officer of Honeywell and a 1963 graduate of the Naval Academy.

The companies said they expect to achieve annual savings of $500 million through cutting overhead and overlap and by implementing efficiency plans.

The news sent stock in both companies skyward. Honeywell closed up $7 a share at $112 -- a new one-year high -- and AlliedSignal rose $4.4375 to close at $62.8125.

Yesterday's deal comes six months after AlliedSignal's failed attempt to buy Harriburg, Pa.-based AMP Inc., the world's largest maker of electrical connectors, in a $9.8 billion hostile bid.

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