Honeywell Divests Friction Materials, Reorganizes

Zacks Equity Research
July 15, 2014

In a concerted effort to align its portfolio around “Great Positions in Good Industries” and leverage on technological synergies, diversified conglomerate Honeywell International Inc. (HON) recently restructured its operating segments. These included the divestiture of Friction Materials business and the merger of Transportation Systems segment with Aerospace business segment effective third-quarter 2014.

Honeywell sold its Friction Materials business to Federal-Mogul Holdings Corp. (FDML), a global manufacturer and supplier of powertrain components and vehicle safety products, for approximately $155 million in cash. The asset sale is part of the Honeywell’s long-term strategy to realign its portfolio with a strong focus on core differentiated technologies and divest those which no longer fit its corporate objective.

Headquartered in Germany, the Friction Materials business has significant operations in Romania and China. This global supplier of automotive brake friction materials and aftermarket brake products offers disc brake pads, drum brake linings and a variety of aftermarket brake products under the Bendix and JURID brand names. These products are primarily used in passenger cars, light trucks, commercial vehicles, aircraft and railway, and other industrial applications.

Under the terms of the agreement, Federal-Mogul acquired the Friction Materials business that operates only in Europe, China and Brazil and not in the U.S. In addition, the transaction did not include the Bendix line of products and the joint ventures that operate in Australia, Thailand and Malaysia. Honeywell will continue to own the non-operating sites in Conde, France and Guangzhou, China.

Honeywell also decided to reorganize its operating segments by merging Transportation Systems segment with the Aerospace segment to leverage on the shared business models and the engineering and technology similarities. The automotive turbocharger business, which has originated from the Aerospace business and currently is an integral part of the Transportation segment, is one of the high-margin propositions for Honeywell.

By combining the two businesses, Honeywell expects to benefit from an expanded sharing of the technical expertise for an enriched portfolio of differentiated products in the respective markets.

Effective third-quarter 2014, the three business segments of the company will be:  Aerospace, Automation and Control Solutions, and Performance Materials and Technologies. The overall financial performance of the company will include Transportation Systems within Aerospace segment and will have no material impact on the historical consolidated financial position, results of operations, or cash flows.

Honeywell currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include United Technologies Corp. (UTX) and CLARCOR Inc. (CLC), both of which carry a Zacks Rank #2 (Buy).

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