Honeywell Sets AdvanSix Spinoff For The First Of October

Honeywell’s (HON) board of directors approved the spinoff of AdvanSix, its resin and chemical business. The spinoff will take place on October 1st and shareholders as of September 16th will receive 1 share of AdvanSix for every 25 shares of HON owned. A When-Issued market is expected to be in place beforehand, but post-spin, the company will trade on the NYSE under the ticker ‘ASIX’.

The spinoff was announced shortly after Honeywell’s bid for United Technologies (UTX) failed and represents the continuing ‘evolution’ of the company’s portfolio. Or so says CEO and Chairman Dave Cote:

Today’s announcement represents another step in the evolution of the Honeywell portfolio and is consistent with our focus on businesses that offer high growth potential through differentiated technologies and software capabilities…we will continue to execute on our balanced capital deployment approach, which includes high-ROI capital expenditures, a competitive dividend, strategic M&A, and opportunistic share buybacks. During the past 15 years, we’ve made approximately 90 acquisitions and divested approximately 70 businesses, which has helped us establish a portfolio of businesses that can fully leverage our core technological strength and focus on great positions in good industries.

So the company is focused on high growth potential and differentiated technologies or in other words…not AdvanSix. Slightly awkward as shareholders are about to own the company. As discussed in an earlier post, AdvanSix is mainly known for manufacturing Nylon 6 (its about 24% of its total sales) which is used in plastics, fibers and numerous other areas. A quick glance at the most recent Form 10 filing reveals a cyclical and competitive business which has seen sales and profitability decline over the past few years. That said, as an independent company led by Erin Kane, the unit’s leader within Honeywell, AdvanSix should be able to plan and better maneuver around the market. Honeywell is sticking the company with some debt though and will receive a cash distribution of ~$270m from AdvanSix as part of the spin.

It’s worth watching whether the odd ratio and unfavorable characteristics create an opening here. While S&P hasn’t officially announced the corresponding index moves, it is also possible that AdvanSix will not join its parent in the S&P 500. That would also contribute to some forced selling and further create a possible attractive entry point.

Disclosure: Author holds no position in any stock mentioned.