Shares of Honeywell International Inc. HON closed 1.5% higher in yesterday’s trading session, after the company announced the receipt of all requisite regulatory approvals for its $5.1 billion acquisition of the Elster Division of Melrose Industries.
This speeds up the transaction timeline, and Honeywell now expects to close the acquisition on Dec 29, 2015. The company reaffirmed its financial guidance for 2015 and 2016 that it had outlined just last week. (For more details, read: Honeywell Shares Jump 5.7% on Upbeat Guidance for 2016)
Honeywell announced the decision to buy Elster in July, in what would be the industrial heavyweight’s biggest purchase since its merger with Allied Signal in 1999.
Melrose Industries will use the proceeds to return over £2 billion to shareholders and decrease its debt burden.
Elster, a maker of gas, electric and water meters, will broaden Honeywell’s portfolio of equipment offerings. Elster’s products include equipment to measure and regulate the flow of natural gas, and gather and evaluate data on it. The deal will provide Honeywell access to Elster Group's metering technology and clientele in the highly-regulated heating, controls and metering industries, including smart meters and data analytics.
Elster is expected to add about $1.8 billion in annualized sales to Honeywell’s top line.
The acquisition is a strategic step to deploy Honeywell’s mounting cash hoard, even as shareholders continue to push for stock buybacks and dividends. The deal represents a significant step for Honeywell, and is part of the five-year plan that it laid out in March 2014 to target at least $10 billion in acquisitions.
Honeywell has made 84 successful acquisitions in the last 13 years, boosting its annual sales by about $12 billion and creating an impressive portfolio that includes 65 brands.
Honeywell was one of the few American industrial companies, which increased its earnings forecast earlier this year. Most companies have trimmed earnings expectations amid headwinds like crude price slump, a strong dollar and weak growth in emerging economies such as Brazil.
Honeywell presently has a Zacks Rank #3 (Hold). Some better-ranked stocks that are worth a look now include Federal Signal Corp. FSS, Huntington Ingalls Industries, Inc. HII and General Dynamics Corporation GD, each sporting a Zacks Rank #2 (Buy).
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