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News > Deals
Allied, Honeywell tie knot
June 7, 1999: 8:50 p.m. ET

$13.8B stock deal aims to create leader in aviation systems industry
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NEW YORK (CNNfn) - AlliedSignal Inc. said Monday it will buy electronic controls systems maker Honeywell Inc. in a stock swap worth more than $13.8 billion, a deal aimed at creating a powerhouse in the aviation products industry.
     AlliedSignal had been looking for a partner for two years, CEO Lawrence Bossidy said. The deal makes up for AlliedSignal's failed attempt to buy electronics maker AMP Inc. last year and solves the problem of who will succeed Bossidy, who retires in April 2000.
     After the AMP failure, "today I'm delighted to say not only do we have a bigger and broader company, but I also have a successor in Michael," Bossidy told The Moneyline News Hour with Lou Dobbs.
     Michael Bonsignore, chairman and CEO of Honeywell, will be CEO of the new company, called Honeywell International Inc. but based in AlliedSignal's hometown of Morristown, N.J. Bossidy will be chairman until his retirement, when Bonsignore will also take that post.
     The purchase marks an attempt by Dow industrials component AlliedSignal to boost its core aviation-systems business and enhance its revenue growth.
     Bonsignore told Moneyline that the deal would give it the "financial firepower" it needs to compete. It will have a market capitalization of around $45 billion. Giving up Honeywell's autonomy such as its headquarters was a "small concession," he said.
     The new company also may put pressure on some other competitors, such as Northrop Grumman (NOC) and Emerson Electric (EMR), analysts said.
     Shares in both companies in the deal soared on the news. AlliedSignal stock closed up 4-7/16 to 62-13/16 Monday.
     Honeywell closed up 7 Monday to 112, though the stock was up as much as 9-3/4 to 114-3/4 Monday morning. That was a 52-week high, building on gains made Friday amid rumors that a deal was imminent.
     "We think it's a terrific deal," said Eli Lustgarten, managing director of Schroder & Co. "Allied needed top-line growth. Honeywell had top-line technology."
     The companies said Monday that they hoped to create a "total cockpit solution" for the aircraft industry through the merger, building on the strengths of Honeywell's navigation-equipment business and AlliedSignal's flight-safety products.
     The company's aerospace unit, to be based in Phoenix, Ariz., would be its largest single segment with around $10 billion in annual revenue, about 40 percent of the total.
     "Obviously one of the big advantages here is increased size as well as increased diversity," Bonsignore said.
     Speaking at a news conference in New York, he said aerospace customers are choosing to deal with fewer suppliers, and the new company would be able to provide more products from a single company.
     Besides its aviation business, AlliedSignal also makes automotive products, specialty chemicals, fibers and plastics. Honeywell also makes products for homes and businesses, including thermostats and security systems.
    
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Performance of Honeywell shares over the past three months.

     The merger will result in the elimination of 4,500 jobs, out of a total of 120,000, over the first 18 months after the deal is completed, the companies said. Honeywell's Minneapolis headquarters will be closed.
     Both Honeywell and AlliedSignal supply parts to Boeing Co. (BA), the leading aircraft maker in the United States; Allied also supplies parts to Europe's Airbus Industrie.
     Bonsignore said the merger will result in about $500 million in annual cost savings and will position the new company -- which will enter the Fortune 50 of the country's biggest corporations -- to proceed with further acquisitions.
     The deal, expected to close in the fourth quarter of 1999, should boost per-share earnings by 17 cents in 2000; 26 cents in 2001 and 32 cents in 2002, the companies said.
     "Clearly we will see accelerated growth potential -- 8 to 10 percent growth on top line growth," Bonsignore said.
     Under the terms of the deal, each share of Honeywell (HON) common stock will be exchanged for 1.875 shares of AlliedSignal (ALD) common stock. That values the deal at $109.45 per share based on Friday's closing price - and with Honeywell having 126 million outstanding shares, the deal would have a total value of $13.8 billion.
     However, based on Monday's closing stock prices, the deal's value would increase to about $14.8 billion, or $117.77 a share.
     The new company also will assume about $1.5 billion of Honeywell debt.
     "We think the complementarity in aerospace is powerful, something we couldn't have done by ourselves," Bossidy said. He said the merger will add to earnings immediately.
     Bossidy also downplayed antitrust concerns from the government.
     Bossidy -- a former vice chairman of General Electric (GE) -- wanted a big acquisition under his wing before he steps down, said Tom Burnett, founder of Merger Insight. "This will be the swan song for Mr. Bossidy," Burnett said. "He had been very interested in putting something together that would put Allied in the lead in certain markets."
     Bossidy said Monday that discussions about a possible merger with Honeywell began several years ago, but the talks repeatedly broke down. In February, he said, he approached Bonsignore again and the two sides began to negotiate intensively.
    
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AlliedSignal stock price
over the past year.

     The deal follows Allied's attempt to enter the electronic and electrical parts business, which ended in its unsuccessful bid for AMP Inc. (AMP), a Harrisburg, Pa.-based supplier of electrical connectors. The $10 billion cash bid was torpedoed last year by an $11.3 billion stock offer from Tyco International (TYC).
     The new company will retire the name AlliedSignal, which was created in 1985 when the Allied Corp. merged with the Signal Cos. Bossidy said it was hard to part with his company's name, but that Honeywell has brand recognition.
     There is a breakup fee of $350 million if either side backs out of the deal, but analysts said that the merger makes sense for both sides and should go forward fairly smoothly. The deal has been approved by both companies' boards but is still subject to shareholder and regulatory approval.
     Antitrust regulators may want to scrutinize whether the deal is anti-competitive, but the two companies' operations are different enough that the merger likely would not cause major concern, analysts said.
     Neither company sees crossover as an insurmountable problem in the merger, Bossidy said. "We see very little in the way of overlap," he said. "To the extent that there is overlap, we'll work that out."Back to top

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