Aerospace parts maker Arconic Inc. (ARNC) - under pressure from activist Elliott Management's Paul Singer -- could be sold in the coming months to Honeywell International Inc. (HON) after the technology and manufacturing company completes a spinoff leaving an aircraft division that needs to get bigger, The Street founder Jim Cramer said Thursday.
"I think the Elliott guys are trying to get this deal done," Cramer suggested during his annual stock picks for 2018 address to The Deal Economy Conference. "Who is the natural buyer? It's going to be Honeywell. Honeywell will split into two companies in the next six months and has an aircraft division that it needs to make much larger. I think it could happen because Elliott does not want to sit there forever."
Earlier this year Elliott and Arconic had been involved in one of the most contentious boardroom battles of 2018, one in which drove out the aerospace company's CEO, Klaus Kleinfeld in a move that was followed up by the installation of three dissident directors. Indirectly, Elliott already had contributed three directors to Arconic's board. In 2016, Elliott settled with Alcoa to add directors, three of which moved over to Arconic when it split from Alcoa.
In October, Arconic installed twenty-four year GE veteran Charles "Chip" Blankenship as its chief executive, ending a close to the five-month hiring process that was closely scrutinized by Elliott Management. Cramer argued that Blankenship wants to run the company for the "long haul" but that it may not be in the cards given that Elliott Management "has been in it for a couple of years and would like to see a much higher return."
Cramer insisted that Honeywell may have been interested in buying airplane parts maker Rockwell Collins (COL) but that United Technologies (UTX) in September agreed to buy it for $30 billion including debt. Cramer suggested that United Technologies came in and paid roughly 14 times adjusted EBITDA "which is really huge" and indicated that Arconic, the last remaining real free-standing aerospace parts maker, could sell for a high multiple as well.
Honeywell In October agreed to spin off its homes and global distributions units and its transportation business by the end of 2018. The spin-off announcement occurred after another activist, Third Point's Dan Loeb, in April launched a campaign urging Honeywell to spin off its aerospace unit, which he said at the time would increase in shareholder value more than $20 billion. Even though Honeywell didn't take that action the spin-off move pleased Loeb, who said in a statement that he agreed that Honeywell should narrow its business focus.
An Elliott Spokesman did not return a request for comment.
Arconic is a holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells ARNC? Learn more now.
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