MPR: Employees uncertain about Honeywell's future

Employees uncertain about Honeywell's future
By Bill Catlin, Minnesota Public Radio
June 3, 2001
First of two parts

With the European Union blocking General Electric's $45 billion purchase of Honeywell International, 6,200 Honeywell employees in Minnesota are wondering what's ahead.

Keith Schmalzbauer says he and his union colleagues at Honeywell can do little but watch the struggle over Honeywell's future. He had hoped the merger with GE wouldn't go through.
(MPR Photo/Bill Catlin)

SEVERAL MONTHS AGO, Keith Schmalzbauer wouldn't have been sitting on his front porch in St. Paul in the middle of a weekday. But Schmalzbauer was one of 850 Honeywell employees in the Twin Cities laid off earlier this year. He's also president of United Steelworkers of America Local 9444. "I can certainly accept it either way, but my personal preference is I hope it doesn't go through," says Schmalzbauer, who adds that he and his membership can do little but watch the struggle over Honeywell's future.

Schmalzbauer got his way. European anti-trust officials blocked the deal for fear the combination of GE's aircraft engine and leasing businesses with Honeywell's aviation-electronics systems would give GE too much market power.

For his part, Schmalzbauer says he'd rather not work for a company whose style he compares to a bulldozer. "They have a philosophy that they kind of hit the deck running, just like they're storming the beach, of taking over industries, or companies and it's their way or the highway," he says.

Several forces appear to be pushing Honeywell into the arms of someone, even if it's not GE. For one thing, Honeywell's shares have plunged.

"Overall, I would say that most Honeywell shareholders, or prospective shareholders, would be happier with Honeywell as part of a larger organization," says Hal Goldstein, a fund manager with Lutheran Brotherhood.

With the GE deal blocked, he says the spotlight shifts to United Technologies, another aerospace giant. The company was close to buying Honeywell before GE swooped in. Like GE, United Technologies has a big jet-engine business, Pratt & Whitney.

Goldstein says United Technologies' large aerospace business might prompt similar objections from European regulators. That's why he predicts there won't be an offer soon. "United Technologies' getting involved would require United Technologies feeling real comfortable that it understands why General Electric's merger with Honeywell was not allowed, and why theirs would somehow be different," according to Goldstein.

Mario Monti, competition commissioner of the European Commission, which blocked General Electric's $45 billion purchase of Honeywell.

Goldstein says there are no other obvious merger partners, so Honeywell must be prepared to go it alone. He says the company may benefit from several months under GE's direction, and recent cost cutting, including 6,500 job cuts company-wide. But he says it's not enough to offset the challenge of a tough economic environment and likely morale problems.

Steven Roorda, with American Express Financial Advisors, says companies often struggle after preparing for a merger that collapses. "If you talk to a lot of their competitors they'll say to you, 'Look some of the best resumes we've seen have been coming out of Honeywell, over the last six to 12 months.' So, you know Honeywell's lost some key people. Second thing is, they probably have stopped on a dime in terms of new product development, capital expenditures, all the things you would normally do if you were going to be a surviving entity. And so I think it's going to be difficult to restart the growth engine for Honeywell."

Roorda predicts the Honeywell board will begin preparing to sell off Honeywell businesses and wait for an offer for the whole company. "I think the odds are 50-50 that Honeywell is still an independent company 12 months after the transaction would be voted down. I would view the odds much higher that they would be acquired 24 months after the transaction would be voted down," he says.

Roorda says United Technologies remains the leading candidate to make an offer. He doubts the end of the GE deal will mean a major new round of job cuts. But he says Honeywell's Twin Cities-based Home and Building Control business - with about 2,500 - Twin Cities workers - could easily be carved out and sold. A Honeywell spokesman declined to comment for this story.

Next story: 'A marriage made in hell'

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