Wall Street Likes the AlliedSignal-Honeywell Merger
The stock prices of both AlliedSignal (the nominal buyer) and Honeywell rose on June 7 when the two companies officially announced their merger, creating a $25-billion conglomerate with businesses in aerospace, chemicals, controls, and transportation products. The combined company will be called Honeywell, but will be headquartered in AlliedSignal's current location, Morristown, NJ.
The companies expect to achieve annual cost savings of approximately $500 million by rationalizing overhead costs, accelerating Six Sigma implementation (a formal quality control program that AlliedSignal has maintained), integrating R&D, and achieving procurement efficiencies. These savings are expected to begin immediately upon closing and to be fully realized by 2002. The combined company will have a work force of more than 120,000 employees after the integration is complete, reflecting the elimination of approximately 2,000 jobs within the first six months after closing and approximately 2,500 additional job reductions in the following year. Although Honeywell's Minneapolis headquarters offices will be closed, the new company will continue to have over 6,000 employees in the Twin Cities area.
Aerospace electronics are one of the more attractive components of the merger; while Honeywell is a leader in navigation controls, AlliedSignal is one in surveillance systems. Aerospace will represent approximately 40% of the combined firm. Honeywell Industrial Automation and Control, the leading process control vendor in petrochemicals and refining, will probably benefit somewhat from more-direct access to AlliedSignal chemical plants—but it hasn't been so long ago that Monsanto Co. unloaded Fisher Controls (which became Fisher-Rosemount), giving up that apparent advantage.
Lawrence Bossidy, chairman and CEO of AlliedSignal, will be the new company's chairman and, until his retirement on April 1, 2000, will focus on integrating the two companies. The succession plan for Bossidy, a very popular CEO in the Wall Street community, had been a concern of the company prior to the merger. Now, Michael Bonsignore, chairman and CEO of Honeywell, will be the new company's CEO, and will take over as chairman after Bossidy's retirement. The board of directors of the new company will be comprised of nine members from the current AlliedSignal board and six members from the current Honeywell board.
Reporting to Bonsignore will be two COOs: Robert Johnson, currently president and CEO of AlliedSignal's Aerospace organization, and Giannantonio Ferrari, currently Honeywell's president and COO. Johnson will have responsibility for the combined aerospace operations headquartered in Phoenix, AZ, which will be the new company's largest single segment with approximately $10 billion in annual revenues. Ferrari will have responsibility for all of the other businesses of the combined company, which have total revenues of approximately $15 billion: industrial controls, home and building controls, turbochargers and other transportation products, specialty chemicals, and performance polymers.