Q&A: Honeywell Demands that Its Banks Understand It

Controls are Honeywell's business-a fact not lost on its bankers.

The Minneapolis-based company has made more than 40 acquisitions in the last three years and has emerged as one of the world's largest makers of industrial and residential control systems.

But it wasn't until its $600 million, all-cash purchase of Measurex Corp. in March that the company turned to the syndicated lending market for funding. To do that deal, it asked Chase Manhattan Corp., J.P. Morgan & Co., and Citicorp to lead a $1.325 billion five-year revolver.

First set for $1.2 billion, the investment-grade credit was oversubscribed, even after it was enlarged. A bond issue, led by J.P. Morgan and Bear, Stearns & Co. and co-managed by Chase, was also increased, by $150 million, to $550 million.

Lawrence W. Stranghoener, vice president and chief financial officer of Honeywell Inc., spoke with American Banker about the Measurex deal and the company's banking relationships.

What motivated Honeywell to take out its first syndicated loan?

STRANGHOENER: We felt the market was there. We felt we could get much better pricing and that with Chase's leadership, we could maintain the very attractive terms and conditions we had under the bilateral agreements we had in place, but with some of the pricing and documentation flexibility that comes with a syndicated credit.

What kind of flexibility did you want?

STRANGHOENER: We are fairly unique in that we have no financial covenants in our bilateral credit agreements. When we grew satisfied that we would be able to preserve that in a syndicated facility - given the better pricing we would get and the ease of putting the agreement together- we felt syndicated was the way to go.

Did banks oppose the absence of covenants?

STRANGHOENER: We en-countered some resistance, but we were able to overcome that by focusing on the total financial relationship that we wanted and expected to have with our banks, and by having them understand our somewhat unique history in this regard. In the end, there were three or four banks that were part of our bilateral agreements that did not choose to participate, but the bulk of them did.

How was your experience with the loan?

STRANGHOENER: It's gone very well. We got the deal done, we got it done on attractive terms and, I think, quite efficiently. It was done against a backdrop of our exposure to this Litton legal liability (a patent infringement suit filed by Litton Systems Inc.), and yet despite that, we got the numbers we wanted. In fact, we got a little bit more sizable package than we had gone out after.

Why was Chase selected to lead the loan?

STRANGHOENER: Of all of our banks, they have been the one that has been most constant in their support. We know that when we call them needing help, they will respond immediately. They have an excellent service orientation, as do the other two (J.P. Morgan and Citicorp). But Chase has earned this business, based upon their relationship, their service, and their leadership in the syndicated credit marketplace.

Why was Chase made a co-manager on the bond issue?

STRANGHOENER: It was really the same rationale.

How does the convergence of commercial and investment banks work to your benefit?

STRANGHOENER: We think there are efficiencies that can be gained when we can funnel more of our business to banks-regardless of whether they are commercial or investment banks-to take care of our needs. What we really focus on here is relationships.

We want people to spend the time, the resources, and the investment required to get to know us and our needs. That makes them better partners. To the extent that an institution is spending the time to do that, we'd like to be able to work with it on a broad range of financial fronts.

Why was Bear Stearns picked to advise you on the Measurex acquisition?

STRANGHOENER: We first used them on our Duracraft acquisition in early 1996. They did a terrific job for us on that; thus it was pretty easy for us, and a somewhat natural decision, to turn to them when we started getting into discussions with Measurex.

What impressed us most with Bear Stearns is that when we first started discussions with Measurex, there was very little real prospect of getting a deal done. Bear Stearns understood that, and yet they were willing to spend a great deal of time and effort helping us understand Measurex. Then when discussions did heat up again late in 1996, it was only natural that we would turn to Bear Stearns for the formal assignment.

Would you use a commercial bank for M&A advisory work?

STRANGHOENER: It depends upon the institution's willingness to understand Honeywell. I don't have much time for institutions, whether they're commercial banks or investment banks, that schedule appointments with me without doing any homework whatsoever and lay out a menu of possible acquisition targets. That doesn't do me much good.

What I need are institutions who are willing to understand what we might be looking for in terms of acquisitions and spend some time helping us identify, and perhaps even screen, candidates. These are the institutions, whether they're commercial or investment banks, that are going to get business from us on the M&A side.

What needs have your banks not met yet?

STRANGHOENER: If I had one wish, it's that they focus even more on the relationship aspects. Even our strongest banks, at times, can become too product- or transaction-oriented.

For example, we are really looking hard for funding alternatives for customers in Eastern Europe and in China and other parts of Asia. We're not getting satisfactory responses from our financial institutions, in part because the proposition we have might be too small for them. It might not be a big enough opportunity in their views, and yet it's absolutely vital to our continued financial success.

Is there anything you want to say directly to bankers?

STRANGHOENER: I think that I would one more time echo my theme of relationship banking. We live by it, we believe in it, and I think that Chase and Morgan and Citi and Bear Stearns are the beneficiaries in the recent past of that orientation.

These are the banks that have been there for us. These are the banks that are showing a true commitment to a relationship and have been rewarded with some very attractive business from us in the past couple of years.

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