AlliedSignal said Monday it's buying Minneapolis-based Honeywell in a $14 billion stock deal. The companies plan to create a global technology concern with revenues of $25 billion across a wide range of industries, from aerospace to electronics.
The newly formed Fortune 50 company will be called Honeywell with headquarters in Morristown, N.J.
Honeywell's headquarters in Minneapolis will be closed. The two companies will cut a total of 4,500 jobs, or 3.6 percent, of their combined work force.
Both companies' stock surged on Wall Street Monday as investors were quick to see the synergies and cost savings of the deal.
Shares of AlliedSignal rose 3 7/8 to 62 1/4 in trading Monday morning. Honeywell gained 6 1/16 to 111 1/6.
AlliedSignal makes equipment ranging from aircraft engines and collision early-warning systems, to wheels and brakes. Honeywell makes control systems for aircraft, homes and commercial buildings, such as automatic thermostats for heating.
Each share of Honeywell (HON) common stock will be exchanged for 1.875 shares of AlliedSignal (ALD) common stock.
The all-stock merger is expected to be immediately accretive to earnings per share, with an estimated boost of 17 cents per share in 2000 and 32 cents per share in 2002.
Based on 126 million Honeywell shares outstanding and AlliedSignal's stock price on Friday, the transaction is valued at more than $14 billion. The new company will also assume approximately $1.5 billion of Honeywell debt.
The transaction is expected to be tax-free to shareholders and will be accounted for as a pooling of interests. It's expected to close in the fourth quarter of 1999.
The new firm's goals will include annual earnings per share growth of at least 15 percent, revenue growth of 8 to 10 percent, and free cash flow exceeding $2 billion by 2002.
The companies expect to achieve annual cost savings of approximately $500 million by rationalizing overhead costs, integrating research and development.
The cost savings are expected to begin immediately upon closing and to be fully realized by 2002.
AlliedSignal Chairman and CEO Lawrence A. Bossidy will be the new company's chairman and until his retirement on April 1, 2000, will focus on integrating the two companies.
Michael R. Bonsignore, 58, chairman and CEO of Honeywell, will be the new company's CEO.
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. Upon Bossidy's retirement, Bonsignore will become chairman.
The firm's largest single segment will be aerospace, headquartered in Phoenix, Ariz., with about $10 billion in annual revenue.
A $15 billion piece will be made up of industrial controls, home and building controls, turbochargers and other transportation products, specialty chemicals, and performance polymers.
"The merger is an exciting natural fit of two companies whose usinesses and cultures are highly complementary," Bossidy said in a statement.
"We are both successful, growth-driven technology companies who are intensely focused on performance, delighting customers, and making our workplaces world-class."