Still digesting the merger with AlliedSignal, Honeywell's Michael Bonsignore must convince skeptical investors that the combined company can deliver on its growth and productivity targets. Now for the hard part: He's set his sights on elevating the new company to the rarified ranks of Toyota, Royal Dutch/Shell, Cisco Systems and--you guessed it--GE.
THE BUSINESS LANDSCAPE IS littered with failed or ill-conceived mergers, a fact not lost on Honeywell's Michael Bonsignore, when he got a call from AlliedSignal's chief Larry Bossidy, a year ago. For the Plattsburg, N.Y born Bonsignore, 58, the combination promised a boost into the big leagues for the $8.4 billion Minneapolis maker of electronic control equipment. For Bossidy, 65, the deal solved a succession problem at the $15 billion diversified manufacturer and allowed the former lieutenant of GE'S Jack Welch, to exit at the top of his game. The deal created a $24 billion manufacturing and services conglomerate operating in four areas: aerospace, controls, performance materials and chemicals and power and transportation products. With 120,000 employees in nearly 100 countries the "new" Honeywell as the merged firm would be called, could boast that it entered the Fortune 50 as one of the Dow Jones index stocks capitalizing on a strong balance sheet. With $9 billion in revenue outside the U.S. the company is counting on its brand strength and enlarged global scale to give it heft in world markers.
To outsiders the two chiefs are a study in contrasts. Bossidy, a tough-minded Irishman not known for his patience or suffering fools gladly, brought his process-minded managerial talents to a stumbling conglomerate and turned AlliedSignal into a darling of earnings consistency. Bonsignore, the son of Sicilian-American army doctor, is a highly personable, but focused figure who took Honeywell out its doldrums when he took over in 1993. Although not having the same public stature as Bossidy, Bonsignore nonetheless managed to convince him and the Allied Signal board to meet most of his demands including the retention of the Honeywell name. In return, Bonsignore agreed to keep corporate headquarters in Morristown, N.J. Severing its 115-year historical tie with Minneapolis was not an easy thing to do according to insiders.
Like sausage manufacture and lawmaking, merger integration shouldn't be witnessed by the squeamish. Yet the bloodletting thus far is proving remarkably contained--8,000 layoffs to date--up from the 4,500 originally anticipated. Led by Bill Hjerpe from Honeywell and Ray Stark from AlliedSignal, integration was completed in less than six months through 130 teams made up of 600 employees from both companies. Unlike an Exxon and Mobil or a Daimler and Chrysler, AlliedSignal and Honeywell were engaged in different but complementary businesses. Turf fights were few. "Having been through one significant merger," says CFO Richard Wallman who had been Bossidy's CFO, "I think this one has gone incredibly well. Apprehension remains an issue; we don't know everyone as well as we would like, but we don't view someone as an AlliedSignal person vs. a Honeywell person."
Bossidy and Bonsignore divided their time calling customers who they say saw the benefits of the merger intuitively. Both also had to get our and re-recruit employees. "It became clear that we had to solve the me problem before we could get to the we issues," Bonsignore says. "for example, our pension plan could have been a huge problem. Ultimately we let people keep their old one if they chose."
What will the merged culture become? Bonsignore allows that AlliedSignal excels at internal productivity processes such as six sigma whereas Honeywell is better at delighting the customer. He hopes a best of breed hybrid will survive but says he has no preconceptions. Early on some differences were apparent. Last June a merger announcement meeting was called for a Sunday morning at 8a.m. in Morristown. Bossidy insisted it be held at 6a.m., but with Bonsignore arriving late the night before from Minneapolis with numerous documents to absorb, a compromise time of 7a.m. was reached. With Bossidy, all key management meetings start before their scheduled rime. He arrived at 6:15p.m. with all two dozen AlliedSignal executives knowing enough to be in their seats on either side of their boss no later than 6:20a.m. For the next 35 minutes -- with Bossidy growling--they stared at empty chairs across the table, the Honeywell team showing up at the appointed meeting time.
Whatever the cultural outcome the new business focus is changing from a product to a solutions mentality. Services and solutions now account for half of the new company's revenue with products constituting 40 percent and licensing 10 percent. Last year Honeywell took responsibility for the automation and process control of a Chevron oil refinery, a responsibility Chevron previously did itself Last month Bonsignore called on two Georgia carpet manufacturing CEOs to whom Honeywell sells specialty chemicals. He asked them how they bought their energy and compressed air. The manufacturers asked for a Honeywell team to investigate the savings that might accrue if these functions were outsourced. The company's recent $2 billion acquisition of Pittway Corp., a maker of sensors and security systems, puts Honeywell a step closer to offering integrated wireless home and building controls monitoring climate, lighting, and security. A supplier of propellant for drug inhalation devices, the company is considering making the product on an OEM basis for companies such as Glaxo and ICI--allowing "big pharma" to devote its energies to marketing and research. The push into solutions is part of the plan to achieve 8 to 10 percent revenue growth--half to come from acquisitions and the other half to come from internal growth. Sitting on $6 billion in cash the company is reviewing potential acquisitions which it will be free to pursue at year end due to SEC restrictions owing to the use of pooling of interest accounting.
In addition, the new firm is counting on 7 percent annual productivity improvement from both its six sigma plus and e-business initiatives. The company expects first year merger-related savings of $250 million after implementation costs. It recently raised the merger's cost savings estimates over three years from $500 million to $750 million--$175 million of which is expected from "black belt" six sigma improvement. That the company services gets double the productivity boost from its six sigma efforts, doesn't mitigate the fact that to some degree it is living on borrowed time. To maintain the 18 percent EPS growth as a result of the merger it needs to grow the top line. Where will it come from? Revenue from aerospace solutions is targeted to grow 2-3 percent; automation and asset management, 4-6 percent; performance materials, 6-8 percent; and power and transportation products are expected to grow at 5-7 percent.
That's the plan, anyway. When the companies merged the new firm had a market cap of about $50 billion, roughly twice Raytheon's and Emerson Electric's but two thirds that of Tyco International and less than one seventh of GE'S. If scale is the name of the game, Bonsignore has his work cut out.
So far Wall Street is not completely convinced. Last December's announcement of the Pittway...