Honeywell International Inc., which began in the Twin Cities and still has 3,300 Minnesota employees, is spinning off its home technologies and transportation businesses into two new public companies.

The Minnesota employees are mainly employed by Honeywell’s home and building technologies and aerospace units. The company is keeping the aerospace division.

“We are still very early in this process, so no decisions have been made about which employees will be affected,” said Honeywell spokesman Scott Sayres. He added that it also has not been decided where new headquarters will be located.

The home technologies and transportation units — Honeywell’s oldest businesses — have annual sales of about $7.5 billion.

The reorganization will simplify Honeywell’s broad portfolio, boost growth and give shareholders a tax-free benefit from the new companies, Honeywell CEO Darius Adamczyk said on a conference call Tuesday.

The idea behind spinning off the home technologies and ADI Global Distribution businesses into one company and its transportation systems business into another company is to have the future Honeywell focused on commercial and industrial businesses, Sayres said. The company then will exit the consumer and auto businesses.

“Today’s announcement marks the culmination of a rigorous portfolio review involving a detailed assessment of every Honeywell business,” said Adamczyk in a statement. “As part of that review, we analyzed numerous criteria, including growth outlook, financial performance, market dynamics, potential for disruption, and, most importantly, assessment of fit as a Honeywell business.”

Honeywell will keep six units that Adamczyk said have high growth potential, including the aerospace division. Others include handheld computers, work boots, cockpit controls, jet engines and catalysts for oil refineries.

Activist investors, most notably Dan Loeb’s Third Point, pushed Honeywell to spin off its aerospace division last April. Honeywell said that it reviewed those proposals, but ultimately decided it would be better for the company to hold on to its defense business.

Adamczyk said in the conference call that the aerospace unit is poised for growth. Global tensions are on the rise due to conflicts in the Middle East and a potential conflict with North Korea.

Shares of Honeywell are up 24 percent this year, but trail by a wide margin shares of other defense companies like Rockwell Collins, Boeing and Raytheon.

“I am thrilled by what we have in aerospace,” Adamczyk said. “It’s a great player and it’s going to continue to win the marketplace.”

Third Point expressed support for Adamczyk.

“We are pleased that the board and management chose to conduct a thorough portfolio review and agreed that Honeywell should narrow its business focus,” Third Point said in a statement. “We are supportive of CEO Darius Adamczyk’s leadership and confident that his commitment to continuous portfolio optimization will further improve shareholder value.”

Analysts praised the moves, but said Honeywell had more changes to make, and warned that the aerospace business, with products ranging from jet engines to airplane Wi-Fi systems, may need to merge to gain the size to compete with larger rivals.

An aerospace spinoff or merger with General Electric’s aerospace unit would make Honeywell a stronger competitor to United Technologies and a “more powerful supplier to Boeing Co. and Airbus SE,” Scott Davis, analyst at Melius Research, wrote in a note. “That’s a deal worth thinking about.”

The homes and global distribution business will include home heating, ventilation and air conditioning controls and security and fire protection products.

It will have about 13,000 employees and roughly $4.5 billion in annual revenue.

The transportation systems business will serve engine types across global automobile, truck and other vehicle markets. It will have about 6,500 workers and annual revenue of about $3 billion. The transportation business shrank in 2014 after Honeywell sold off a brakes business to Federal-Mogul Corp. for $155 million. The operation was tucked under Honeywell’s aerospace division, where it didn’t quite fit.

Honeywell expects the restructuring will be completed by the end of next year. It also boosted the low end of its full-year earnings forecast.

Allied Signal bought Honeywell in 1999 and adopted its name for the merged company but moved the corporate headquarters to New Jersey.

The company’s Minnesota employees are in facilities in Golden Valley, Minneapolis, Plymouth and Coon Rapids, Sayres said.

State officials said they have not been contacted by Honeywell officials about any downsizing.

Sayres said the public shouldn’t assume that next year’s spinoffs will result in major downsizing.

“Keep in mind that the idea of spinning off these divisions into separate companies is that they will be stand-alone businesses that will be on their own, and still operating very profitably,” he said. “That doesn’t mean that the jobs will go away. It just means they will be working for a different company rather than Honeywell.”

 

Includes reporting by staff writer Dee DePass and the Associated Press, Reuters and Bloomberg.